Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month. A. What is the marginal product of labor?
B. What is the ratio of the marginal product of labor to the price of labor (MPL / PL )?
1. What is the ratio of the marginal product of capital to the price of capital (MPK/ PK )?
C. Is the firm using the least-costly combination of inputs?
1. Yes, because MPK/PK = MPL/PL.
2. No, because MPK/PK > MPL/PL.
D. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?
1. Revenue is increased more by spending money on an additional worker.
2. Revenue is increased more by spending money on an additional tractor.