A firm operates at its least-cost position for a given level of output by equating
A)the marginal product of each factor.
B)the marginal product per dollar spent for each factor.
C)the price of each input.
D)the total expenditure on each input.
E)the average product for each factor.

Question

Quizplus · Accepted Answer

Operating at the least-cost position involves minimizing the cost of inputs while producing the desired level of output. Therefore, firms aim to use the inputs that provide the most marginal product per dollar spent. Choice B accurately describes this process. The firm will compare the marginal product of each input to its price and allocate resources to the input that provides the highest marginal product per dollar spent until all inputs have been employed to the point where this condition no longer holds.

A Firm Operates at Its Least-Cost Position for a Given