The MPP of labor divided by its (labor's)price is greater than the MPP of capital divided by its (capital's)price. Costs can be minimized by

Question

Quizplus · Accepted Answer

The given inequality suggests that labor is relatively more productive than capital. Therefore, in order to minimize costs, one should buy more labor and less capital. This will help in achieving the optimal input combination where the marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital, thus minimizing the total cost of production. Alternatively, buying more capital and less labor would increase the cost of production as the marginal product per dollar spent on capital would be lower than the marginal product per dollar spent on labor. Hence, option B is the best choice.

The MPP of Labor Divided by Its (Labor's)price Is Greater