A firm uses two inputs, A and B.At its optimal choice of input proportions, A)MRP of A = MRP of B. B)MRP_A/P_A = MRP_B/P_B. C)MPP of A = MPP of B. D)All of the above are correct.

Question

Quizplus · Accepted Answer

At the optimal choice of input proportions, the marginal revenue product (MRP) per unit of input and the marginal resource cost (MRC) per unit of input must be equal for both inputs. This can be represented by the equation in option B, where P_A and P_B represent the prices of inputs A and B, and the subscripts 1 and 0 represent the quantities before and after the optimal input mix is chosen. Therefore, option B correctly captures the condition for input usage optimization. Options A and C do not necessarily hold true in all cases.

A Firm Uses Two Inputs, a and B