Assume that labor is plotted on the horizontal axis and capital is plotted on the vertical axis.A firm plans to spend $1,000 per week on inputs and confronts a wage rate of $10 per hour and a capital rental rate of $20 per hour.Given this information,what will be the slope of the isocost curve?
A)-2
B)-1/2
C)-100
D)-50

Question

Quizplus · Accepted Answer

The equation for the isocost curve is given by TC=wL+rK, where TC is the total cost, w is the wage rate, L is labor, r is the rental rate of capital, and K is capital. We can rearrange this equation to solve for K: K=(TC-wL)/r. Plugging in the values given, we get K=(1,000-10L)/20. Rearranging this equation gives us L=50-2.5K. Thus, the slope of the isocost curve is -2.5, which is the negative of the ratio of the rental rate of capital to the wage rate, i.e. -r/w. Therefore, the best choice is B, which represents the correct slope of the isocost curve.

Assume That Labor Is Plotted on the Horizontal Axis and Capital