For a firm with only two inputs,capital and labour,the condition MPK/MPL = PK/PL guarantees that the firm is
A)at its profit-maximizing output but is not necessarily minimizing its costs.
B)minimizing its costs but is not necessarily maximizing its profits.
C)technically efficient but not economically efficient.
D)economically efficient but not technically efficient.
E)at its profit-maximizing and cost-minimizing level of output.

Question

Quizplus · Accepted Answer

The condition MPK/MPL = PK/PL (where MPK is the marginal product of capital, MPL is the marginal product of labor, PK is the price of capital, and PL is the price of labor) ensures that the firm is allocating its resources in such a way that the last dollar spent on each input yields the same amount of output. This is a condition for cost minimization, as the firm cannot lower its cost for a given level of output by altering the input mix. However, this condition does not guarantee profit maximization, as it does not consider whether the firm is producing the optimal level of output given the market demand and price.

For a Firm with Only Two Inputs,capital and Labour,the Condition