The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
FIGURE 8-6
-Refer to Figure 8-6. Suppose this firm is producing 4000 golf tees with 10 units of capital and 25 units of labour point G). The marginal rate of substitution between capital and labour is
A) 2.5.
B) 0.4.
C) 100.
D) 40.
E) 0.025.

Question

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
  FIGURE 8-6
-Refer to Figure 8-6. Suppose this firm is producing 4000 golf tees with 10 units of capital and 25 units of labour point G). The marginal rate of substitution between capital and labour is
A) 2.5. 
B) 0.4. 
C) 100. 
D) 40. 
E) 0.025.

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a firm can substitute capital for labor while keeping output constant. It is calculated as the ratio of the marginal product of labor to the marginal product of capital. In this context, the MRS is given as 0.4.

The Figure Below Shows the Isocost Lines and the Isoquant