Answer to Question #205697 in Microeconomics for Paul

Question

When costs are at a minimum,

a)      the ratio of the MP_L/MP_K < P_L/P_K.

b)     MP_L = MP_K.

c)      the extra output we get from the last dollar spent on an input must be the same for all inputs.

d)     Price L = Price K.

Answer 1

The cost are the expenditures which are incurred by the firm for producing the goods and services. The firm would result in the minimizing the costs when the firm minimizes total costs subject to a fixed level of output or a isoquant.

The firm minimizing the costs would result in the minimizing the total costs which would result in the slope of isoquant equal to the slope of the is cost line. The firm minimizes costs which is a dual counterpart of the profit maximization.

The cost minimization states that the ratio of the marginal product of labor and capital would be equal to the price so the inputs w and r or the wage and the rent. Thus, the ratio of the marginal product of labor ad wage would be equal to the marginal product of capital and rent which implies that the last extra output from the last dollar on each input would be similar and the option c is correct.

The ratio of slope of isoquant would be equal to the slope of the is cost line thus option a is incorrect.

The cost minimization would involve wages and rents thus option b is incorrect.

The cost minimization would involve marginal product of labor and capital thus option d is incorrect.