Multiple Choice
When examining the cost-minimizing combination of labor and capital, which condition must hold for a firm to be producing a given level of output at the lowest possible cost?
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10. The Costs of Production
Cost-Minimizing Combination of Labor and Capital
Multiple Choice
In the context of cost-minimization, incremental or differential costs are best described as:
A
The fixed costs that do not change with output
B
The total cost of all inputs used in production
C
The cost savings from reducing the use of capital to zero
D
The additional cost incurred when producing one more unit of output
Verified step by step guidance1
Understand the concept of incremental or differential costs: these refer to the additional costs that arise when production is increased by one more unit.
Recall that fixed costs remain constant regardless of output level, so they do not represent incremental costs.
Recognize that total cost includes all costs (fixed and variable) for all units produced, not just the additional cost of one more unit.
Note that cost savings from reducing capital to zero is related to cost reduction, not the incremental cost of producing an additional unit.
Conclude that incremental or differential cost is best described as the additional cost incurred when producing one more unit of output.
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