Assume the Backwoods Shoe Company hires three inputs: labor (L), capital (K), and land (A) to produce shoes (X). Which of the following conditions must be met so that the firm is using the optimal, or least costly, combination of inputs?
A) MPL = MPK = MPA
B) PL = PK = PA
C) MPL/PL = MPK/PK = MPA/PA
D) MPL = MPK = MPA = 1/PX

Question

Quizplus · Accepted Answer

The condition for using the optimal combination of inputs is that the marginal product per unit of input divided by the price per unit of input is equal across all inputs. This condition is represented by MPL/PL = MPK/PK = MPA/PA. Therefore, choice C is the correct answer. Choices A and D do not take into account the prices of the inputs, while choice B assumes that the prices of the inputs are the same, which might not be the case.

Assume the Backwoods Shoe Company Hires Three Inputs: Labor (L)