Question

Profit maximizing purchasing of inputs occurs when: MPa/Pa=MPb/Pb=…=MPn/Pn VMPa/Pa=VMPb/Pb=…=VMPn/Pn =1 VMPa/MPa=VMPb/Pb=…=VMPn/Pn MPa/VMPa=MPb/VMPb=…=MPn/VMPn

  1. Profit maximizing purchasing of inputs occurs when:
    1. MPa/Pa=MPb/Pb=…=MPn/Pn
    2. VMPa/Pa=VMPb/Pb=…=VMPn/Pn =1
    3. VMPa/MPa=VMPb/Pb=…=VMPn/Pn
    4. MPa/VMPa=MPb/VMPb=…=MPn/VMPn

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Answer #1

Ans. Option b

Marginal Product of input i = MPi

Price of output produced = P

Price paid to input i = Pi

=> Value of marginal product of i = VMPLi

Value of marginal product of an input is the value of the additional output produced by an incremental input and the price paid to the additional input is the marginal cost for each additional output. So, the profit maximizing level would be where revenue from additional input equals the cost of input.
So,

VMPLi = Pi

=> VMPi/ Pi = 1

Thus, for each unit,

VMPa/Pa = VMPb/Pb = VMPc/Pc = .....= 1

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