The least-cost rule
When a firm is producing a specific output with the least-cost combination of resources, where each resource yields the same marginal product.
Marginal product Marginal product
of labor (MPL) = of capital (MPc)
Price of Labor (PL ) Price of Capital (Pc )
The profit-maximizing rule
Profit-maximizing combination of resources: when each resource is employed to the point at which marginal revenue product equals its resource price.
PL= MRPL and PC= MRPC
* A firm producing at the profit-maximizing output is also producing at least-cost. YET a firm can produce ONLY the least-cost output and not the profit-maximizing output.
