A perfectly competitive firm is hiring variable resources M and N. It will minimize total costs

Question

Quizplus · Accepted Answer

To minimize total costs, a perfectly competitive firm will hire variable resources such that the marginal physical product (MPP) per dollar spent on that resource is equal for all resources. This means that the ratio of the MPP to the price of each resource should be the same. In mathematical terms, the firm should choose M and N such that MPPm / Pm = MPPn / Pn. This is equivalent to choice letter D, MPPm / Pm = MPPn / Pn, so that is the best choice.

A Perfectly Competitive Firm Is Hiring Variable Resources M and N