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