Arrange the following steps in the order in which a firm finds the cost of producing a given level of output:
(A) It works out the cost of each of these combinations at the given input prices.
(B) It finds all the input combinations that can produce that output.
(C) This least cost is the value of the cost function at that output.
(D) It chooses the least expensive combination.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (B), (A), (D), (C)
A given output can be produced with several input combinations, so the firm first lists them and then compares their costs.
(B) It finds all the input combinations that can produce that output. — there is usually more than one way to produce it.
(A) It works out the cost of each of these combinations at the given input prices. — the cost of each way can then be compared.
(D) It chooses the least expensive combination. — the firm picks the cheapest way.
(C) This least cost is the value of the cost function at that output. — the cost function gives the least cost of each output.
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.” |