Industrial Footwear Inc. uses capital and labour to produce workboots. Suppose this firm is using capital and labour such that the MPK is equal to 80 and the MPL is equal to 20. For each set of per-unit prices of capital and labour given below, determine whether
Industrial Footwear Inc. is minimizing its costs. If it is not, determine the direction of factor substitution the firm should make in order to do so.
a. PK = $2 PL = $10
b. PK = $20 PL = $5
c. PK = $40 PL = $5