By expressing the cost-minimizing condition as MPK/MPL = PK/PL, we are able to see 68)
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 product of capital (MPK) and labor (MPL) to the prices of capital (PK) and labor (PL) given by the market. It allows the firm to determine the optimal combination of the factors of production that minimizes their cost of production for a given level of output. Therefore, the best choice is E. Choices A, B, C, and D are incorrect because they do not fully capture the purpose and implications of the cost-minimizing condition.

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