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March 24, 2017

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Zuppann, Inc. has just completed a study of its production process for gadgets. It uses labor and capital to produce gadgets. It has determined that 1 more unit of labor would increase output by 200 gadgets. However an additional unit of capital would increase output by 150 gadgets. If the current price of capital is $10 and the current price of labor is $25, is the firm employing the optimal input bundle for its current output? Why or why not? If not, which input’s usage should be increased?

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