The maximum possible output for a given cost can be obtained from two factors, labor (L) and capital (K), if:
A) MPL/MPK = PL/PK
B) MPL/PL =MPK/PK
C) PL/MPL = MPK/PK
D) A and B are both correct.

Question

Quizplus · Accepted Answer

The maximum possible output for a given cost is achieved when the firm allocates its resources in such a way that the last dollar spent on each input produces the same marginal increase in output. This condition is met when the ratio of the marginal product of labor to its price (MPL/PL) equals the ratio of the marginal product of capital to its price (MPK/PK), as stated in option B. Additionally, rearranging the terms of this equation gives MPL/MPK = PL/PK, which is option A. Therefore, both A and B correctly describe the condition for cost minimization and efficient resource allocation.

The Maximum Possible Output for a Given Cost Can Be