Final answer:
In the context of perfect substitutes production technology, cost-minimization involves choosing the least expensive input based on the relative prices rather than finding a combination of inputs.
Step-by-step explanation:
When we have a perfect substitutes production technology, the cost-minimizing input bundle is determined by comparing the slope of the isocost line with the technical rate of substitution. However, since we are dealing with perfect substitutes in production, the technical rate of substitution does not apply because the inputs can be substituted for each other at a constant rate. Therefore, the firm will simply choose the least expensive input entirely, rather than combining inputs. This decision is guided by the relative prices of the inputs. The firm will allocate its entire budget to the input that has the lower cost per unit of output, which maximizes production for a given cost.
In the context of long-run production decisions, where all costs are variable, firms tend to substitute relatively inexpensive inputs for relatively expensive ones to achieve the lowest possible long-run average cost. This strategy also plays a role in determining the firm's optimal scale of production, especially when economies of scale are present, allowing larger factories to produce at a lower average cost than smaller factories.