Suppose two inputs are perfect substitutes. In order to minimize production costs, the producer will simply have to employ the cheapest input.
a. True b. False
Answer
Flase
The producer hires the input which provides the higher per dollar marginal product
Ex.
MPL=10 and w=10, MPK=5 and r=7.5
per dollar MP=MP/price of input
per dollar MPL=10/10=1
per dollar MPK=5/7.5=0.666666667=0.67
the capital is cheaper but the produce hires labor because the labor provides higher per dollar marginal product.
Suppose two inputs are perfect substitutes. In order to minimize production costs, the producer will simply...