The point of least-cost input occurs where the marginal rate of technical substitution is equal to the ratio of the prices of factors.

Question

Quizplus · Accepted Answer

This is a true statement in microeconomics. At the point of least-cost input, the firm maximizes its output given its budget constraint by using inputs in the most efficient way possible. This occurs where the marginal rate of technical substitution (MRTS) is equal to the ratio of input prices. The MRTS represents the rate at which one input can be substituted for another while keeping the level of output constant. Therefore, at this point, the firm has minimized its costs of production without sacrificing output.

The Point of Least-Cost Input Occurs Where the Marginal Rate