All Quiet on the Western Bundt is a bakery specializing in the production of bundt cakes using a combination of labor and capital.

If the firm increases its capital and decreases its labor and produces the same amount of bundt cakes, what happens to the marginal product of capital $\left(M P_{K}\right)$ and the marginal product of labor $\left(M P_{L}\right)$ ?

Choose 1 answer:
(A) $M P_{K}$ decreases; $M P_{L}$ doesn't change
(B) $M P_{K}$ doesn't change; $M P_{L}$ decreases
(c) $M P_{K}$ increases; $M P_{L}$ doesn't change
(D) $M P_{K}$ decreases; $M P_{L}$ increases
(E) $M P_{K}$ increases; $M P_{L}$ decreases

Question

All Quiet on the Western Bundt is a bakery specializing in the production of bundt cakes using a combination of labor and capital.

If the firm increases its capital and decreases its labor and produces the same amount of bundt cakes, what happens to the marginal product of capital $\left(M P_{K}\right)$ and the marginal product of labor $\left(M P_{L}\right)$ ?

Choose 1 answer:
(A) $M P_{K}$ decreases; $M P_{L}$ doesn't change
(B) $M P_{K}$ doesn't change; $M P_{L}$ decreases
(c) $M P_{K}$ increases; $M P_{L}$ doesn't change
(D) $M P_{K}$ decreases; $M P_{L}$ increases
(E) $M P_{K}$ increases; $M P_{L}$ decreases

Accepted Answer

∻Solution∻ ‖ a ⋮ Marginal Product of Capital (MPK): The marginal product of capital is the additional output produced by using one more unit of capital, holding other inputs constant. ‖ ‖ b ⋮ Marginal Product of Labor (MPL): The marginal product of labor is the additional output produced by using one more unit of labor, holding other inputs constant. ‖ ‖ c ⋮ Substitution Effect: When the firm increases its capital and decreases its labor while producing the same amount of bundt cakes, the marginal product of capital (MPK) is likely to decrease because the additional capital becomes less effective as more capital is used. Conversely, the marginal product of labor (MPL) is likely to increase because the reduced amount of labor becomes more productive with the increased capital. ‖ ∻Answer∻ ⚹ (D) $M P_{K}$ decreases; $M P_{L}$ increases ⚹ ∻Key Concept∻ ⚹ Diminishing Marginal Returns ⚹ ∻Explanation∻ ⚹ When a firm increases one input (capital) and decreases another (labor) while keeping output constant, the marginal product of the increased input (capital) typically decreases due to diminishing returns, while the marginal product of the decreased input (labor) increases as it becomes relatively more productive. ⚹◊What impact does increasing capital and decreasing labor have on the marginal product of capital and the marginal product of labor in the production of bundt cakes?⍭ Generate me a similar question◊

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