By expressing the cost- minimizing condition as MPK/MPL = PK/PL, we are able to see
A) that the capital- labour ratio is fixed.
B) that the firm is producing at a lower cost if the left- hand side of the equation is greater than the right- hand side.
C) that the ratio of factor prices is constant over time.
D) how the firm determines its profit- maximizing output.
E) how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the market.

Question

Quizplus · Accepted Answer

The cost-minimizing condition of MPK/MPL=PK/PL shows how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the market. By equating the ratio of marginal products to the ratio of factor prices, the firm can minimize its cost of production. The other options are not directly related to this equation.

By Expressing the Cost- Minimizing Condition as MPK/MPL = PK/PL