Q. Suppose a competitive firm produces 100 units of X for a price of Rs.10 a unit. The firmis employing labour and capital such that the marginal physical product of labour and capital is 20 and 5 and the prices paid to labour and capital are Rs. 60 and Rs. 40 respectively. How would you characterize the firm (Solved)

1. the firm is in long-run equilibrium

2. the firm is earning excess profits

3. the firm should expand production

4. the firm should contract production

  • c. the firm should expand production
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