Directions: Suppose a firm's marginal product of capital and marginal product of labor schedules are as shown in the table below. The firm hires both capital and labor competitively for $5 and $8, respectively. This assignment will be graded out of 6 points with 2 points possible for each question.

Capital MP of Capital Labor MP of Labor
0 0
1 10 1 28
2 9 2 30
3 8 3 24
4 7 4 20
5 6 5 16
6 5 6 12
7 4 7 8
8 3 9 4

1. Suppose the firm is currently using 4 units of capital and 4 units of labor. Is the corresponding output being produced at least cost? How do you know?

2. Consider your answer to the question above. Generally speaking, what would a firm need to do in order to move towards producing at the least cost?


3. What is the least-cost combination of labor and capital?