Companies need to know that more dollars spent on capital resources means more dollars spent

on labor resources. $6 is the price of capital, the marginal utility is 60 of capital, and 60 divided
by $6 gives the total price of labor of 10. The cost of labor is $2.50 and the marginal product of
labor is 20. Marginal utility capital is 20, and 20 divided by $2.50 equals 8. So the more dollars a
company spends on capital and labor, the 25% more they produce. I will move the company
forward so that it is more funded with capital than labor resources.

Marginal product of capital (MPK)=60

Marginal product of labor (MPL)=20

Wage rate (wr) =$2.50

Price capital=$6

MPL=20÷wr=2.50 total =8

MPK =60÷T=6 total =10

8<10

As you can see by calculating MPK, MPL, PL, and PK, the results show that adding $1 to capital
gives you more net production units, specifically 25% of labor. In this situation, firms choose to
use additional capital investment instead of labor to achieve maximum performance at total
cost. As a result, the marginal product of capital decreases and the marginal product of labor
increases.

Reference

Sean Masaki Flynn. (2018). Economics. Hoboken, Nj: John Wiley & Sons, Inc.

Rittenberg, L. & Tregarthen, T. (2009). Principles of Economics. Flat World Knowledge