Which of the following conditions indicate cost minimization, assuming two inputs, labour (L) and capital (K)?
A) PK · MPK = PL · MPL
B) MPK/PK = MPL/PL
C) MPK/PL = MPL/PK
D) MPL = MPK
E) PK = PL

Question

Quizplus · Accepted Answer

The condition for cost minimization is when the ratio of the marginal product to the price of each input is equal, i.e., MPK/PK = MPL/PL. This ensures that the firm is getting the same marginal benefit per unit cost from each input.

Which of the Following Conditions Indicate Cost Minimization, Assuming Two