A firm uses two inputs, A and B.At its optimal choice of input proportions,
A) MRP of A = MRP of B.
B) MR $ \mathrm{P}_{\mathrm{A}} $ / $ \mathrm{P}_{\mathrm{A}} $ = MR $ \mathrm{P}_{\mathrm{B}} $ / $ \mathrm{P}_{\mathrm{B}} $ .
C) MPP of A = MPP of B.
D) All of the above are correct.

Question

A firm uses two inputs, A and B.At its optimal choice of input proportions,
A) MRP of A = MRP of B.
B) MR $ \mathrm{P}_{\mathrm{A}} $ / $ \mathrm{P}_{\mathrm{A}} $  = MR $ \mathrm{P}_{\mathrm{B}} $ / $ \mathrm{P}_{\mathrm{B}} $ .
C) MPP of A = MPP of B.
D) All of the above are correct.

Quizplus · Accepted Answer

At the optimal choice of input proportions, the marginal revenue products (MRP) of both inputs divided by their respective prices should be equal. This is because if MRP of A is greater than MRP of B, the firm should hire more of A and less of B to increase profits, and vice versa. However, at the optimal proportions, the additional input hired should add the same amount to total revenue per dollar spent on it, hence giving us the equation MRPA/PA = MRPB/PB.

A Firm Uses Two Inputs, a and B PA \mathrm{P}_{\mathrm{A}} PA​

A Firm Uses Two Inputs, a and B $\mathrm{P}_{\mathrm{A}}$