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 (MRP) of B ($21) is higher than its cost ($7), indicating it is underutilized, while the MRP of A ($30) is twice its cost ($15), suggesting a more balanced use. By adjusting the use of resources to better align the MRP with their costs, the firm can reduce the cost of producing Q.

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