A firm combines two resources, A and B, to produce an output, Q.Their respective marginal revenue products are $30 and $21.A costs $15 a unit and B $7 a unit.To reduce the cost of Q,
A)more B and less A should be used.
B)more A and less B should be used.
C)more of both resources should be used.
D)less of both resources should be used.

Question

Quizplus · Accepted Answer

The firm should use more of resource B and less of resource A because the marginal revenue product per dollar spent on B ($21/$7 = 3) is higher than that on A ($30/$15 = 2). This indicates that B is more cost-effective in producing output Q.

A Firm Combines Two Resources, a and B, to Produce