Assume the marginal product of robots is 10,000 and the price of a robot is $1,000, while the marginal product of labor is 90 and the price of labor is $9. What should the firm do? (A) Increase the amount of capital and decrease labor so the marginal product of robots increases and the marginal product of labor increases (B) Decrease the amount of capital and decrease labor so the marginal product of robots increases and the marginal product of labor decreases (C) Decrease the amount of capital and increase labor so the marginal product of robots decreases and the marginal product of labor increases (D) Increase the amount of capital and increase labor so the marginal product of robots increases and the marginal product of labor increases (E) Increase the amount of capital and decrease labor so the marginal product of robots decreases and the marginal product of labor increases
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For robots, it's 10,000/1,000 = 10 units per dollar. For labor, it's 90/9 = 10 units per dollar. Since the marginal product per dollar is the same for both robots and labor, the firm is currently optimizing its resources. Show more…
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