Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?
A) The MRTS is equal to the ratio of input prices.
B) The marginal product per dollar spent on all inputs is equal.
C) The marginal products of all inputs are equal.
D) The MRTS is equal to the ratio of input prices, and the marginal product per dollar spent on all inputs is equal.

Question

Quizplus · Accepted Answer

When a producer minimizes the cost of producing a given level of output, the producer must consider both the marginal product of each input used and the prices of those inputs. The producer will continue to substitute inputs as long as the marginal rate of technical substitution (MRTS) is not equal to the ratio of input prices. The goal is to find the combination of inputs that will produce the required level of output at the lowest cost. Therefore, the MRTS must be equal to the ratio of input prices. At the same time, the producer also wants to ensure that the marginal product per dollar spent on all inputs is equal. This ensures that each dollar spent on inputs generates the same amount of output. Therefore, both conditions (D) must be true for a producer to minimize the cost of producing a given level of output.

Which of the Following Conditions Is True When a Producer