Suppose the w = $20 and r = $30.The isocost line for a firm in this industry is
A)C = 20K + 30L.
B)K = 0.33C - 0.66L.
C)1.5L + K = 0.5C.
D)Depends entirely on the functional form of the production function.

Question

Quizplus · Accepted Answer

The isocost line equation is derived from the cost equation C = wL + rK, where w is the wage rate and r is the rental rate of capital. Rearranging C = 20L + 30K to solve for K gives K = (1/30)C - (20/30)L, which simplifies to K = 0.33C - 0.66L.

Suppose the W = $20 and R = $30