Roberta runs a dress factory. She produces 50 dresses per day, using labor and electricity. She uses a combination of labor and electricity that produces 50 dresses per day in the cheapest possible way. She can hire as much labor as she wants at a cost of 20 cents per minute. She can use as much electricity as she wants at a cost of 10 cents per minute. Her production isoquants are smooth curves without kinks and she uses positive amounts of both inputs.

Question

Quizplus · Accepted Answer

The optimal combination of input factors such as labor and electricity is achieved when the ratio of the marginal product of labor to the marginal product of electricity is equal to the ratio of their prices. This means that if the marginal product of labor is twice the marginal product of electricity, then the price of labor must be twice the price of electricity for the firm to minimize costs and maximize output. Therefore, option B is correct.

Roberta Runs a Dress Factory