A firm is employing 100 units of labour and 50 units of capital to produce 200 widgets. Labour costs $10 per unit and capital $5 per unit. For the quantities of inputs employed, MP L = 2 and MP K = 5. In this situation, the firm (A) is producing the maximum output possible given the prices and relative productivities of the inputs. (B) could lower its production costs by using more labour and less capital. (C) could increase its output at no extra cost by using more capital and less labour. (D) should use more of both inputs in equal proportions.

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A firm is employing 100 units of labour and 50 units of capital to produce 200 widgets. Labour costs $10 per
unit and capital $5 per unit. For the quantities of inputs employed, MP L = 2 and MP K = 5. In this situation, the firm
(A) is producing the maximum output possible given the prices and relative productivities of the inputs. (B) could
lower its production costs by using more labour and less capital. (C) could increase its output at no extra cost by
using more capital and less labour. (D) should use more of both inputs in equal proportions.

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