When the isocost line is tangent to the isoquant,then
A) MRTS = -w/r.
B) the firm is producing that level of output at minimum cost.
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor.
D) All of the above.

Question

Quizplus · Accepted Answer

When the isocost line is tangent to the isoquant, it indicates that the firm is producing a given level of output at the minimum cost. This point of tangency also means that the Marginal Rate of Technical Substitution (MRTS) is equal to the negative ratio of the wage rate to the rental rate of capital (-w/r), and that the last dollar spent on each input (capital and labor) yields the same amount of extra output, ensuring efficient allocation of resources.

When the Isocost Line Is Tangent to the Isoquant,then