Suppose that a firm's Cobb-Douglas production function involves two inputs, labour (L) and capital (K) and is represented by strictly convex isoquants. The firm is currently producing 400 units of output by hiring 25 units of labour and 10 units of capital.

Scenario A

- labour is twice as expensive as capital to hire, and at the current input combination, the marginal productivity of labour is half of the marginal productivity of capital, i.e., MP_ = = MPk