Let the marginal product of capital (MPK ) be 6; the marginal product of labor (MPL) be 2; the price of labor is given by $10.What will be the price of capital such that the isocost and the isoquant are tangent to each other?

Question

Quizplus · Accepted Answer

For the isocost and isoquant to be tangent to each other, the ratio of the marginal products (MPK/MPL) must equal the ratio of the input prices (Price of Capital/Price of Labor). Given MPK = 6, MPL = 2, and the price of labor = $10, the price of capital that satisfies this condition is calculated as follows: (6/2) = (Price of Capital / $10), which simplifies to 3 = Price of Capital / $10. Solving for the price of capital gives $30.

Let the Marginal Product of Capital (MPK ) Be 6;