In the long run, a firm seeks the combination of two factors a and b such that: A) MPₐ/Pₐ = MPb/Pb. B) MPₐ/Pₐ MPb/Pb. D) MPₐ/MPb

Question

In the long run, a firm seeks the combination of two factors a and b such that:
A) MPₐ/Pₐ = MPb/Pb.
B) MPₐ/Pₐ < MPb/Pb.
C) MPₐ/Pₐ > MPb/Pb.
D) MPₐ/MPb < Pₐ/Pb.

Quizplus · Accepted Answer

In the long run, a firm seeks to allocate its resources in the most efficient way possible, which means equalizing the marginal product per unit cost of all inputs. This is achieved when the ratio of the marginal product of factor a to its price (MPₐ/Pₐ) is equal to the ratio of the marginal product of factor b to its price (MPb/Pb), as stated in option A. This principle is known as the equal marginal principle and is a fundamental concept in economics for achieving optimal resource allocation.

In the Long Run, a Firm Seeks the Combination of Two