Question

A firm wants to minimize the total cost of producing 100 tons of dynamite. The firm uses two factors of production, chemicals and labor. The combination of chemicals and labor that minimizes production costs will be found where:

A) the marginal products of chemicals and labor are equal.

B) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the marginal product of chemicals to the marginal product of labor.

C) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the price of chemicals to the wage rate.

D) the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.

Answer 1

D) the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.

Step-by-step explanation:

The combination of chemicals and labor that minimizes production costs will be found where the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.

The average total cost would be minimized when the production level (chemicals or labor) of output at the marginal cost, mc is minimized.

Answer 2

D) the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.

Step-by-step explanation:

Average total cost (ATC) per unit will be lowest where ATC curve intersects marginal curve (MC). At that point producing an additional unit of dynamite will cost the same no matter which combination of inputs (chemicals or labor) is used. At this point, production costs will be minimized, and then they will rise again (ATC curve is U-shaped).