Multiple Factors
Combining Resources
Up to this point we have analyzed the
use of only one resource.
What about when a firm wants to combine
different resources?
Least Cost Rule
$10
How much additional output does each
resource generate per dollar spent?
$5
# Times
Going
MP
MP/PR
MP
MP/PW
(Robots)
(PriceR =$10)
(Workers)
(PriceW =$5)
1st
30
3
20
4
2nd
20
2
15
3
3rd
10
1
10
2
4th
5
.50
5
1
If you only have $35, what combination of robots
and workers will maximize output?
Least Cost Rule
$10
Resource k
MPk = MPL
Pk
PL
$5
Resource L
# Times
Going
MP
MP/PR
MP
MP/PW
(Robots)
(PriceR =$10)
(Workers)
(PriceW =$5)
1st
30
3
20
4
2nd
20
2
15
3
3rd
10
1
10
2
4th
5
.50
5
1
If you only have $35, the best combination is
2 robots and 3 workers
Profit Maximizing Rule for a Combing
Resources
MRPk = MRPL =
MRCk
MRCL
1
This means that the firm is hiring where
MRP = MRC for each resource k and L
Practice: What should the firm do – hire
more, hire less, or stay put?
1. MRPL = $15; PL = $6; MRPC = $10; PC = $10
MORE
STAY PUT
2. MRPL = $5; PL = $10; MRPC = $10; PC = $15
LESS
LESS
3. MRPL = $25; PL = $20; MRPC = $15; PC = $15
MORE
STAY PUT
4. MRPL = $12; PL = $12; MRPC = $50; PC = $40
STAY PUT
MORE
5. MRPL = $20; PL = $15; MRPC = $100; PC =$40
MORE
MORE