If for a firm the price of input A is four times the price of input B,costs will be minimized for a given level of output when the
A) firm uses four times as much input A as input B.
B) total product of input A is four times greater than the total product of input B.
C) average product of input A is four times greater than the average product of input B.
D) marginal product of input A is four times greater than the marginal product of input B.
E) total products of both A and B are equal to four times the marginal products of inputs A and B.

Question

Quizplus · Accepted Answer

The cost-minimizing condition for a firm is where the ratio of the marginal product of each input to its price is equal across all inputs. In this case, since input A is four times the price of input B, the firm should use more input B to compensate for the difference in price. This means that the marginal product of input B will be higher than that of input A, so the firm should use less input A relative to input B. Therefore, the marginal product of input A should be four times greater than that of input B.

If for a Firm the Price of Input a Is