If the marginal product of labor is 45 units of output and the marginal product of capital is 56 units of output while the wage rate is $20 per worker and the cost of capital is $28 per machine, are these two inputs being used in the least-cost
combination and what should be done if they are not?
The marginal product per dollar spent on labor is 2.25 units and the marginal product per dollar spent on capital is 2 units. Therefore, the firm is not using the least-cost combination of inputs. To reduce costs the firm should use more labor and less capital.
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The experience of the HPAEs has brought attention to predictions about income inequality made by Kuznets. He predicted that at first income inequality would ________ as economies began to develop. In the HPAEs experience it ________
A) rise; rose B) decrease; decreased C) rise; fell D) fall; rose E) There was no pattern.
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