Assume the Backwoods Shoe Company hires three inputs: labor (L), capital (K), and land (A) to produce shoes (X). Which of the following conditions must be met so that the firm is using the optimal, or least costly, combination of inputs? A) MP_L = MP_K= MP_A B) P_L = P_K = P_A C) MP_L/P_L = MP_K/P_K = MP_A/P_A D) MP_L = MP_K = MP_A = 1/P_X

Question

Quizplus · Accepted Answer

The correct condition for the optimal combination of inputs in production is when the marginal product of an input divided by its price is equal for all inputs. This ensures that the last dollar spent on each input yields the same amount of additional output, achieving cost minimization.

Assume the Backwoods Shoe Company Hires Three Inputs: Labor (L)