Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX MPY/PY.To minimize the cost of production,the firm should hire
A)more input Y and less input X.
B)more input X and less input Y.
C)more input Y only if its price falls.
D)more input X only if its price increases.
E)more input X only if its price decreases.

Question

Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX > MPY/PY.To minimize the cost of production,the firm should hire
A)more input Y and less input X.
B)more input X and less input Y.
C)more input Y only if its price falls.
D)more input X only if its price increases.
E)more input X only if its price decreases.

Quizplus · Accepted Answer

The condition MPX/PX > MPY/PY means that the marginal product per dollar spent is higher for input X than for input Y. Therefore, the firm should hire more input X and less input Y to minimize the cost of production while still producing its desired level of output. This is because it can get more output per dollar spent on input X than on input Y, so it is more cost-effective to use more input X and less input Y.

Suppose a Firm Employs Two Inputs,X and Y,and That at Their