Answer the question on the basis of the following information: Suppose a firm hires both labor (L)and capital (C)under purely competitive conditions.The price of labor is P_L and that of capital is P_C.The marginal product of labor is MP_L and that of capital is MP_C.The firm sells its product competitively at a price of P_X. Refer to the given information.Which of the following must pertain if the firm is to minimize the cost of producing any output? A) MP_C = MP_L = P_X. B) MP_C = P_C and MP_L = P_L. C) MP_C/P_C = MP_L/P_L. D) MP_C/P_X = MP_L/P_X.

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Quizplus · Accepted Answer

To minimize the cost of producing any output, a firm must equalize the marginal product per dollar spent on all inputs. This is achieved when the ratio of the marginal product of capital to its price equals the ratio of the marginal product of labor to its price, as stated in option C.

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