Question

In the standard case, when costs of producing a given output are at a minimum,

a

the ratio MPL/MPK must be less than the relative price ratio PL/PK.

b

MPL = MPK.

c

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

d

B and C are true.

Answer 1

Option C is correct. When cost of producing a given output are at a minimum level when the extra output we get from from the last dollar spent on an input must be same for all inputs. It means that at minimum cost MPL / w = MPK/ r

If this does not equal for all inputs , then the inputs whose Extra output to last dollar spent ratio is higher will be used more as compare to inputs whose ratio is lower. This will continue until the ratio is same for all inputs.