Suppose the marginal productivity of capital is 50 units of output and the marginal productivity of labor is 75 units of output. Capital costs $25 per hour and wages are $15 per hour. The firm: is minimizing its costs of production. has just the right amount of both inputs.. should hire more labor and use less capital. • should ●

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.