Suppose a firm uses land, labor, and capital for its production process. If it is renting the equilibrium quantity of all three factors of production, then which of the following conditions will be true?
A) Marginal product from the last dollar spent on land = Marginal product from the last dollar spent on labor Marginal product from the last dollar spent on capital
B) Marginal product from the last dollar spent on land Marginal product from the last dollar spent on labor Marginal product from the last dollar spent on capital
C) Marginal product from the last dollar spent on land Marginal product from the last dollar spent on labor = Marginal product from the last dollar spent on capital
D) Marginal product from the last dollar spent on land = Marginal product from the last dollar spent on labor = Marginal product from the last dollar spent on capital

Question

Suppose a firm uses land, labor, and capital for its production process. If it is renting the equilibrium quantity of all three factors of production, then which of the following conditions will be true?
A) Marginal product from the last dollar spent on land = Marginal product from the last dollar spent on labor > Marginal product from the last dollar spent on capital
B) Marginal product from the last dollar spent on land > Marginal product from the last dollar spent on labor > Marginal product from the last dollar spent on capital
C) Marginal product from the last dollar spent on land > Marginal product from the last dollar spent on labor = Marginal product from the last dollar spent on capital
D) Marginal product from the last dollar spent on land = Marginal product from the last dollar spent on labor = Marginal product from the last dollar spent on capital

Quizplus · Accepted Answer

In an equilibrium state, a firm will allocate its budget across all factors of production (land, labor, and capital) in such a way that the marginal product per dollar spent on each is equal. This ensures the most efficient use of resources.

Suppose a Firm Uses Land, Labor, and Capital for Its