CHOICE OF INPUTS BY THE FIRM Marginal Products and the Least-Cost Rule Every firm must decide how to produce its output. Should electricity be produced with oil or coal? Should cars be assembled in the United States or Mexico? Should classes be taught by faculty or graduate students? We now complete the link between production and cost by using the marginal product concept to illustrate how firms select the least-cost combinations of inputs. A simple example will illustrate how a firm might decide between different input combinations. Say a firm's engineers have calculated that the desired output level of 9 units could be produced with two possible options. In both cases, energy (E) costs $2 per unit, while labor (L) costs $5 per hour. Under option 1, the input mix is E=10 and L=2. Option 2 has E=4 and L=5. Which is the preferred option? At the market prices for inputs, total production costs for option 1 are ($210)+($52)=$30, while total costs for option 2 are ($24)+($55)=$33. Therefore, option 1 would be the preferred least-cost combination of inputs. Least-cost rule: To produce a given level of output at least cost, a firm should buy inputs until it has equalized the marginal product per dollar spent on each input. This implies that