Question

Assume that a farm has only two factor inputs, labor and land, and that resource prices remain constant. This firm finds that the marginal product of labor for the last worker hired, when divided by the price paid for that additional worker, exceeds the marginal product of land for the last acre acquired when divided by the price paid for that last acre. To achieve least-cost while maintaining the same level of output, in the long run, this firm must utilize

A. more labor
B. more acreage
C. more labor and less acreage
D. less labor
E. less labor and more acreage

Answer 1

Answer:

C. more labor and less acreage

Explanation:

The marginal product of labor is the increases in output that a company gains by employing one more unit of labor.  The marginal product of land is the extra benefits experienced by acquiring one more acre of land.  

The concept of the marginal product helps management determine the optimal level of a resource to employ in order to attain maximum profits. A business should deploy more resources if the marginal revenue product is greater or equal to the resource costs.

If dividing the marginal cost of labor by the cost of the additional worker gives a higher figure, it means an additional worker is more profitable to the firm. More employees should be employed to work in the firm while avoiding to add more acreage.