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

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

Quizplus · Accepted Answer

As MPX/PX > MPY/PY, it implies that the marginal product per dollar spent on X is higher than that on Y. Therefore, to minimize the cost of production and maximize efficiency, the firm should hire more of input X, which provides higher marginal product per dollar spent, and less of input Y. Consequently, the answer is E, more input X and less input Y.

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