A firm can minimize cost by
A) picking the bundle of inputs where the lowest isocost line touches the isoquant.
B) picking the bundle of inputs where the isoquant is tangent to the isocost line.
C) picking the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any other input.
D) All of the above.

Question

Quizplus · Accepted Answer

All the options describe the condition for cost minimization in production. Option A and B are essentially describing the same scenario from slightly different perspectives, where the firm's choice of inputs is at the point where the isoquant (representing a constant level of output) is just tangent to the lowest possible isocost line (representing a constant cost). Option C describes the principle of equal marginal productivity per dollar spent on inputs, which is another way of stating the condition for cost minimization.

A Firm Can Minimize Cost by