The cost-minimizing equilibrium condition can be written as A) MP_L = MP_K. B) P_L = P_K. C) (MP_L)(P_L) = (MP_K)(P_K). D) MP_L/P_L = MP_K/P_K.

Question

Quizplus · Accepted Answer

The correct answer is D because it represents the condition where the marginal product of labor (MPL) divided by the price of labor (wage, W) is equal to the marginal product of capital (MPK) divided by the price of capital (rental rate, R). This condition ensures that the cost of producing an additional unit of output is minimized across all inputs.

The Cost-Minimizing Equilibrium Condition Can Be Written as