Question

A firm hires labor, capital, and land to produce grapefruits. currently the marginal product of the last unit of labor input is 40, the marginal product of the last unit of capital input is 60, and the marginal product of the last unit of land input is 200. the market wage is $20 and the market price for capital is $30. if the firm is using the optimal combination of inputs, then the price of land is

Answer 1

Answer:

$100

Explanation:

the marginal product per dollar spent on labor = 40 units / $20 = 2 units per dollar

the marginal product per dollar spent on capital = 60 units / $30 = 2 units per dollar

the marginal product per dollar spent on land = 2 = 200 / $X

$X = 200 / 2 = 100 ⇒ the cost per unit of land is $100

The marginal product per dollar spent on a factor of production (labor, capital or land) is MP(factor)/P(factor). It measures how many additional units of output can be obtained by spending $1 more in a factor of production.