At the point of the optimal input combination, the marginal rate of technical substitution (MRTS) __________________ the ratio of the pricds of the inputs.
A) is less than
B) is greater than
C) equals

Question

Quizplus · Accepted Answer

At the point of the optimal input combination, the MRTS is equal to the ratio of the prices of the inputs. This is because at this point, the firm is using input combination in such a way that the marginal product per dollar spent on each input is equal. Therefore, the MRTS is equal to the ratio of the prices of the inputs. Any deviation from this input combination will result in a lower output and/or higher cost. Therefore, the optimal input combination is where MRTS equals the ratio of the prices of the inputs.

At the Point of the Optimal Input Combination, the Marginal