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Slope of the isocost in terms of input prices

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Reference no: EM131246431

A firm uses only two inputs: capital (K) and labor (L) with prices PK and PL.

a. Define an isocost.

b. Express (write) the slope of the isocost in terms of input prices, i.e. slope = (easy).

c. Define marginal rate of technical substitution (MRTS):

d. Express (write) the MRTS in terms of marginal productivities, i.e., MRTS = _____.

e. Consider point A. Show whether the MPL/MPK is greater or less than the PL/PK at A. From this explain carefully (points based on the explanation) why the firm should use more labor or more capital to increase its output.

Reference no: EM131246431

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