Refer to the following graph.The price of capital (r)is $20. At the optimal combination of inputs for producing 14,000 units of output,what is the marginal rate of technical substitution?
A)2.5
B)0.67
C)1.5
D)0.80
E)impossible to tell from the graph

Question

Refer to the following graph.The price of capital (r)is $20.  At the optimal combination of inputs for producing 14,000 units of output,what is the marginal rate of technical substitution?
A)2.5 
B)0.67 
C)1.5 
D)0.80 
E)impossible to tell from the graph

Quizplus · Accepted Answer

The marginal rate of technical substitution (MRTS) is the rate at which one input can be substituted for another while holding the same level of output. It is the absolute value of the slope of the isoquant at the point of optimal input combination. In this case, the isoquant that passes through the point of optimal input combination for producing 14,000 units of output is tangent to the isocost line. The slope of the isoquant at this point, which is the MRTS, is equal to the absolute value of the slope of the isocost line, which is -20/-13.33=1.5. Therefore, the answer is C.

Refer to the Following Graph