Given below are two statements:
Statement I: A given level of output can usually be produced by more than one combination of inputs.
Statement II: With input prices given, the firm chooses the combination that uses the most labour, since output rises with labour.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is correct but Statement II is incorrect.
Statement I: A given level of output can usually be produced by more than one combination of inputs. — True. For example, 50 units of output can come from three different mixes of labour and capital.
Statement II: With input prices given, the firm chooses the combination that uses the most labour, since output rises with labour. — False. The firm picks the least expensive combination at the given input prices, not the one with the most labour.
NCERT (2026-27): “3.7 Costs In order to produce output, the firm needs to employ inputs. But a given level of output, typically, can be produced in many ways. There can be more than one input combinations with which a firm can produce a desired level of output. In Table 3.1, we can see that 50 units of output can be produced by three different input combinations (L = 6, K = 3), (L = 4, K = 4) and (L = 3, K = 6). The question is which input combination will the firm choose? With the input prices given, it will choose that combination of inputs which is least expensive. So, for every level of output, the firm chooses the least cost input combination. Thus the cost function describes the least cost of producing each level of output given prices of factors of production and technology.” |