Suppose that on the isocost curve that allows you to minimize costs for a given level of production, the total cost is $8000, the y-intercept (on the K axis) is 400 and the x-intercept (on the L axis) is 200

Economics Dec 06, 2020

Suppose that on the isocost curve that allows you to minimize costs for a given level of production, the total cost is $8000, the y-intercept (on the K axis) is 400 and the x-intercept (on the L axis) is 200. Then we know from this information that the marginal rate of technical substitution at the cost-minimizing combination of K and L must be (insert a whole number with no decimals)___________.

Expert Solution

TC = $8000

Y-intercept = K axis = 400

X-intercept = L axis = 200

Thus, the two points on iso-cost curve are (L1, K1) = (0, 400) and (L2, K2) = (200,0)

The MRTS L, K at the cost-minimizing combination is given by: |(K2-K1)/(L2-L1)|

=|(0-400)/(200-0)|

Thus, the marginal rate of technical substitution at the cost-minimizing combination of K and L must be 2

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