1. How do you choose the right combination of inputs?
Least Cost Hiring
How do you choose the right combination of inputs?

3. Optimizing 2-Factors of Production
Firms hire a factor of production until MRP = MFC
A firm can choose the best combination between 2 substitute factors of production through the Least Cost Hiring Rule

4. What Combination?
Machines
Physical Capital
Workers
Labor

5. The Least-Cost Rule
You hire the optimal quantity between 2 resources by equating the ratio of MP to the price of inputs
Labor
Capital
(physical) or
Your choice must satisfy the following equation
(Only one combination will work!)
MPL/PL = MPK/PK
If MPL/PL > MPK/PK then L & K
If MPL/PL < MPK/PK then do opposite

6. Least Cost Hiring Worksheet
Optimizing Factors of Production