Hello everyone I need help with explanation 7. The following figure shows a firm

Question

Hello everyone I need help with explanation 7. The following figure shows a firm's isoquant for producing 2,000 units of output and four isocost curves. Labor and capital each cost $50 per unit. 500 400 200 100 O 2000 100 200 300 400500 Units of labor At point A, the MRTS is (less than, greater than, equal to) the input price ratio, wir. The total cost of producing 2,000 units of output with input combination Ais a. b. By moving from A to B, the firm (increases, decreases) labor usage (increases, decreases) capital usage. At point B the MRTS is greater than, less than, equal to) the input price ratio, wr. The (increased, decreased) total cost by At Point D the firm 2,000 units of output. The MRTS is the input price ratio, wir e. minimizes, maximizes) the cost of producing (greater than, less than, equal to) d. The optimal input combination is units of labor and capital. At this combination, the total cost of producing 2,000 units is -units of MP per dollar spent on- is less than the MP per dollar spent The total cost of producing 2,000 units of output with input combination on Eis S f. The movement from E to F reduces the MP per dollar spent on increases the MP per dollar spent on . This movement (greater than The firm would not use this combination to (increased, decreased) total cost by S & At input combination D, the MP per dollar spent on labor is h. Input combination C costs S less than, equal to) the MP per dollar spent on capital produce 2,000 units of output because

Explanation / Answer

MRTS is the slope of Isoquant curve. Input price ratio is the slope of Isocost curve.

a)

less than (slope of isoquant is less than slope of isocost)  

350 units of labor and 50 units of capital are used. Thus, total cost is
350×50 + 50×50 = 20,000

b)

Decreases Labor usage

Increases Capital usage

less than (slope of isoquant is less than slope of isocost)

100 units of capital and 250 units of Labor are used. Thus, total cost is
100×50 + 250×50 = 17500. Thus, it decreases the cost by 2500  

c) Minimises the total cost of production.
Slope of isoquant is equal to the slope of isocost which is the condition required for optimality.

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