A firm achieves least cost in production by substituting factors until:

Question

Quizplus · Accepted Answer

The firm achieves least cost in production when the ratio of the marginal products of the factors used equals the ratio of their factor prices. This is because if the ratio of the marginal products was different from the ratio of factor prices, the firm could reduce costs by using more of the factor with a higher marginal product and less of the factor with a lower one, until the two ratios are equalized.

A Firm Achieves Least Cost in Production by Substituting Factors