Suppose that the production of wheat requires two inputs, labor and fertilizer. The price of labor is $4.50, and the price of fertilizer is $3.00. A farmer is currently employing the inputs such that the marginal product of labor is 11 and the marginal product of fertilizer is 8. If the farmer is a cost-minimizer, he should
A) use more labor and less fertilizer.
B) use more fertilizer and less labor.
C) use more labor and more fertilizer.
D) continue using the same amounts of each input.

Question

Quizplus · Accepted Answer

The farmer should choose inputs in such a way that the ratio of marginal product to price is the same for both inputs. Let MP(L)/P(L) = MP(F)/P(F) = x. 
The current ratio of marginal product to price for labor = 11/4.5 ≈ 2.44 
The current ratio of marginal product to price for fertilizer = 8/3 ≈ 2.67 
In order to equalize the ratios, the farmer should use more fertilizer and less labor. This will increase the ratio of marginal product to price for labor and decrease the ratio for fertilizer. Hence, the answer is choice B.

Suppose That the Production of Wheat Requires Two Inputs, Labor