If the marginal product of labor per dollar spent (mplw) is greater than the marginal product of capital per dollar spent (mpkr), to minimize costs, the firm should use:

• A. more labor and more capital
• B. more labor and less capital
• C. less labor and less capital
• D. less labor and more capital

Answer: (B)

Verified step by step guidance

1. Understand the concept of marginal product per dollar spent: It measures the additional output produced by spending one more dollar on a particular input. For labor, it is calculated as \(\frac{MPL}{W}\), where \(MPL\) is the marginal product of labor and \(W\) is the wage rate. For capital, it is \(\frac{MPK}{R}\), where \(MPK\) is the marginal product of capital and \(R\) is the rental rate of capital.
2. Recognize that to minimize costs while producing a given level of output, a firm should allocate spending so that the marginal product per dollar is equalized across inputs. This is because if one input gives more output per dollar, the firm can reduce costs by using more of that input and less of the other.
3. Given that \(\frac{MPL}{W} > \frac{MPK}{R}\), the firm gets more output per dollar spent on labor than on capital. Therefore, the firm should increase the use of labor to take advantage of its higher productivity per dollar.
4. At the same time, since capital yields less output per dollar, the firm should reduce the use of capital to avoid inefficient spending and lower overall costs.
5. In summary, to minimize costs, the firm should use more labor and less capital until the marginal product per dollar spent is equalized across both inputs.