To achieve a least-cost combination of factors for each possible output the business firm should equate the marginal product of each factor to its market price.

Question

Quizplus · Accepted Answer

To achieve a least-cost combination of factors for each possible output, the business firm should equate the ratio of the marginal product of each factor to its price across all factors, not just equate the marginal product of each factor to its market price. This is known as the principle of equi-marginal returns or the law of substitution.

To Achieve a Least-Cost Combination of Factors for Each Possible