[amp_mcq option1=”Marginal rate of technical substitution of the factors equals relative factor price ratio” option2=”Ratio of marginal physical productivities of the factors equals the ratio of factor prices” option3=”Slope of the isoquant in question equals slope of the budget line” option4=”Marginal rate of technical substitution of factors of production divided by relative factor price ratio is zero” correct=”option4″]<\/p>\n
The correct answer is D.<\/p>\n
The marginal rate of technical substitution (MRTS) of factors of production is the rate at which one factor can be substituted for another while maintaining the same level of output. The relative factor price ratio is the ratio of the prices of the two factors.<\/p>\n
In the context of cost minimization by a competitive producer, the MRTS of factors of production will equal the relative factor price ratio when the producer is using the least-cost combination of factors. This is because the producer will always want to use the factors that are the most productive, and the relative factor price ratio will reflect the relative productivity of the factors.<\/p>\n
If the MRTS of factors of production were greater than the relative factor price ratio, the producer could reduce costs by using more of the less expensive factor and less of the more expensive factor. Conversely, if the MRTS of factors of production were less than the relative factor price ratio, the producer could reduce costs by using more of the more expensive factor and less of the less expensive factor.<\/p>\n
Therefore, the only option that is not correct is D.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”Marginal rate of technical substitution of the factors equals relative factor price ratio” option2=”Ratio of marginal physical productivities of the factors equals the ratio of factor prices” option3=”Slope of the isoquant in question equals slope of the budget line” option4=”Marginal rate of technical substitution of factors of production divided by relative factor price ratio … <\/p>\n