Final answer:
The formula MPl / MPk = W / C relates to production efficiency in economics. It equates the ratio of the marginal products of labor and capital to the ratio of their respective prices, facilitating cost minimization and output maximization for a firm.
Step-by-step explanation:
The formula MPl / MPk = W / C represents the equality of the marginal product of labor to the marginal product of capital adjusted by their respective prices, which are the wage rate (W) and the cost of capital (C). This is an expression of a firm's production efficiency, specifically in terms of how it allocates resources between labor and capital to minimize costs and maximize output.
When referring to the law of diminishing returns, this indicates how additional units of a variable input (like labor) add decreasing amounts of output after a certain point. Productive efficiency occurs when a company cannot produce more of one good without producing less of another, which is represented by choices along a production possibilities frontier (PPF). Finally, to achieve labor market equilibrium, the wage rate adjusts so that the quantity of labor supplied equals the quantity demanded.