How do you get the least cost combination?

Therefore the least cost combination of two inputs can be obtained by equating MRS with inverse price ratio.

How do you find the optimal capital and labor combination?

To determine the optimal capital-labor ratio set the marginal rate of technical substitution equal to the ratio of the wage rate to the rental rate of capital: K L = 30 120 , or L = 4K. Substitute for L in the production function and solve where K yields an output of 1,000 units: 1,000 = (100)(K)(4K), or K = 1.58.

What is the combination of labor and capital?

A firm chooses a capital-labor combination that minimizes its total cost of production. The exact combination of capital and labor that a firm would choose depends on the relative prices of capital and labor.

What do you mean by least cost combination?

The optimum combination of inputs that is required to produce output at the least possible cost is called the least cost combination.

What is the least cost method?

Definition: The Least Cost Method is another method used to obtain the initial feasible solution for the transportation problem. Here, the allocation begins with the cell which has the minimum cost. The lower cost cells are chosen over the higher-cost cell with the objective to have the least cost of transportation.

Which of the following is shows the least cost combination of input?

Here it is very important for us to observe that the least cost combination of inputs is the point of tangency (here S3) between the particular isoquant (here IQ3) and an iso-cost line (here L3M3).

What is the least cost rule?

The least‑cost rule. States that costs are minimized where the marginal product per dollar’s worth of each resource used is the same. (Example: MP of labor/labor price = MP of capital/capital price).

What is optimum factor combination How is it determined?

The optimum factors combination or the least cost combination refers to the combination of factors with which a firm can produce a specific quantity of output at the lowest possible cost. As we know, there are a number of combinations of factors which can yield a given level of output.

What is the least cost rule when combining resources?

The least cost combination is found where the marginal product per dollar for all the resources a firm employs are equal (MPL/PL=MPN/PN=MPC/PC). If the ratios are not equal, a firm would reduce cost by employing more of the resource with a higher MP/P and less of the resource with a lower MP/P.

How do you calculate MPL and MPK?

These conditions are (i) P·MPL = W for labor, and (ii) P·MPK = R for capital, where P is the price of output, MPL is the marginal product of labor, W is the wage rate, MPK is the marginal product of capital, and R is the rental price of capital. 4. We can rearrange these conditions to imply MPL = (W/P) and MPK = (R/P).

What is least cost method with example?