Homework Answers
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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