A firm uses two inputs, A and B.At its optimal choice of input proportions,
A)MRP of A = MRP of B.
B)MRPA/PA = MRPB/PB.
C)MPP of A = MPP of B.
D)All of the responses are correct.

Question

Quizplus · Accepted Answer

At the optimal choice of input proportions, the marginal revenue product (MRP) of each input divided by its price (P) should be equal across inputs. This is because the firm will allocate its spending on inputs in such a way that the additional output (as measured by MRP) per dollar spent on each input is the same. Therefore, MRPA/PA should be equal to MRPB/PB at the optimal input combination.

A Firm Uses Two Inputs, a and B