To minimize costs, a firm should use more labor and less capital if the product derived from the last dollar spent on labor is ________ the product derived from the last dollar spent on capital.
A) less than
B) greater than
C) equal to
D) either greater than or less than

Question

Quizplus · Accepted Answer

To minimize costs, a firm should allocate its resources so that the marginal product per dollar spent is equal across all inputs. If the marginal product per dollar spent on labor is greater than that on capital, it indicates that labor is currently a more efficient use of funds, so the firm should use more labor and less capital until the marginal products per dollar are equalized.

To Minimize Costs, a Firm Should Use More Labor and Less