Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. If at the current level of production the marginal product of labor is 4 while the marginal product of capital is 2, then in order to minimize your costs of production you should use

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To minimize costs, we want to use inputs in a way that the marginal cost of each input equals its price. If the marginal product of labor is 4 and the price of labor is $10, the marginal cost of labor is $10/4 = $2.5 per unit of output. Similarly, if the marginal product of capital is 2 and the price of capital is $2, the marginal cost of capital is $2/2 = $1 per unit of output. Therefore, we should use more capital (which has a lower marginal cost) and less labor (which has a higher marginal cost) to achieve the same level of output with minimized costs.

Output for a Simple Production Process Is Given by Q