00:01
So here we've got a very strange situation because normally when you see something like this, you want to take a derivative, but we can't do that here, right? we have a very linear production function.
00:13
The production is 4k plus 8l.
00:18
So let's think about the marginal products.
00:20
We know that the marginal product of capital is equal to 4 and the marginal product of labor is equal to 8.
00:26
But we also know that the wage is equal to 60 and the rental rate of capital is equal to 20, right? so the easiest way to think about this is to think about what you're getting.
00:40
When you think about the marginal product of capital over the rental rate, this is equal to 0 .2.
00:48
So this is telling you you get 0 .2 q per dollar on capital, right? you are getting, you buy one unit for 20 bucks, you get four units, you are paying 20 cents sort of per unit, right? mpk over r is a measure of bang for your buck, a measure of cost efficiency.
01:11
But if i do this over here for the wage 60, right, this is, and i can't even do that in my head because my brain is rotten like a mushy cantalow, is equal to zero point, 1333.
01:28
So this is telling you you're getting 0 .13333 cube per dollar on labor.
01:35
So capital is the better deal.
01:41
And it's always the better deal because the marginal product is unchanged.
01:47
Right here we have no diminishing returns...