When we solve the firm's cost minimization problem by the method of Lagrange multipliers, the optimal value of the Lagrange multiplier equals the:
A) marginal product of labor.
B) marginal product of capital.
C) marginal cost of production.
D) cost-output elasticity.

Question

Quizplus · Accepted Answer

The optimal value of the Lagrange multiplier in the context of a firm's cost minimization problem represents the marginal cost of production. This is because the Lagrange multiplier in this scenario measures the rate at which the total cost increases as the output level is increased, holding the input prices constant.

When We Solve the Firm's Cost Minimization Problem by the Method