Let consider a pepper former who intends to produce 100 baskets of pepper a week using the following combination.
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Land
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Labour
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Method 1
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10
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6
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Method 2
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10
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4
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Method 3
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-8
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9
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Labour cost
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10000/week
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Land cost
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20000/Week
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Method 1
(6 X 10000) +(10 X 20000)
60000+200000= 26000F
Method 2
(4 X10000) + (10 X 20000)
40000 + 200000 = 240000F
Method 3
(9 X 10000) + (8 X 20000)
90000 + 160000 = 250000F
This gardener will use me because it is the lowest combination of band and labour as factors of production, This point is known as the optimum combination of variable factors.
An entrepreneur will be at equilibrium in combining the factors of production when the following condition are attend.
Marginal product of factors X ;
Price of factors x = Marginal
Product of factory/ Price of factory
= MPx/Px=MPx/Py
The equilibrium combination can only be changed if there is a change in the price of the factors of production.
If the wage rate of labour increases but the marginal product of labour while lowering the marginal product of land for labour.
