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 adjust input usage to equalize the marginal product per dollar spent on each input. Currently, the marginal product per dollar for labor is 11/4.50 = 2.44, and for fertilizer, it is 8/3.00 = 2.67. Since the marginal product per dollar is higher for fertilizer, the farmer should use more fertilizer and less labor to minimize costs.

Suppose That the Production of Wheat Requires Two Inputs, Labor