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1. a. If the price of capital is $100/unit, and the price of labor is $40/unit, then using the diagram below graphically esti
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Answer #1

1.

a.

Isocost: C = Pk K + Pl L

where,

Pk = Price of capital

Pl = Price of labor

Cost minimizing condition:

Slope of cost = Pl / Pk = 40 / 100 = 0.4 = Slope of isoquant

K* = 3.

L* = 7.

b.

Cost of producing 150 units of output = 100K + 40L = 100(3) + 40(7) = 300 + 280 = 580.

c.

MRTS in equilibrium = slope of isoquant = slope of isocost = Pl / Pk = 40 / 100 = 0.4.

d.

MRTS = 0.4 = MPPL / MPPK

0.4 = MPPL / 15

MPPL = 6.

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