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(6) Which of the following statements best describes firm's cost-minimizing behaviors? a) A firm's cost is minimized when the isocost line and the isoquant are tangent
(6) Which of the following statements best describes firm's cost-minimizing behaviors? a) A firm's cost is minimized when the isocost line and the isoquant are tangent. b) A firm's cost is minimized when the marginal rate of technical substitution is greater than he slope of the isocost line. c) A firm's cost is minimized when the slope of the tangent of the isoquant is less than the slope of the isocost line. d) A firm's cost is minimized when the isoquant is crossing the isocost line twice. (7) Which of the following statements best describes the relationship between the average and marginal costs of a firm? a) When the marginal cost is greater than the average cost, the marginal cost is decreas- ing b) When the marginal cost is equal to the average cost, the average cost is decreasing. c) When the marginal cost is greater than the average cost, the average cost is decreasing. d) When the marginal cost is less than the average cost, the average cost is decreasing.
Expert Solution
(6) (a)
When isocost is tangent to isoquant, the slope of isocost (= price ratio) is equal to slope of isoquant (= ratio of marginal product of labor and capital).
(7) (d)
When MC < ATC, the ATC curve is decreasing, and when MC > ATC, the ATC curve is increasing.
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