Refer to the following graph.The price of capital (r)is $20. What combination of K and L should the firm choose to produce 14,000 units of output at the lowest cost?
A)180K,120L
B)180K,0L
C)60K,120L
D)90K,60L
E)none of the above

Question

Refer to the following graph.The price of capital (r)is $20. What combination of K and L should the firm choose to produce 14,000 units of output at the lowest cost?
A)180K,120L 
B)180K,0L 
C)60K,120L 
D)90K,60L 
E)none of the above

Quizplus · Accepted Answer

To produce 14,000 units of output at the lowest cost, the firm should choose the point where the isocost line (red line) is tangent to the isoquant (blue line). This is the point of lowest cost for producing 14,000 units of output. The point where this occurs is approximately 90K and 60L, which corresponds to choice D.

Refer to the Following Graph