Refer to the following graph.The price of capital r)is $20. What combination of K and L should the firm choose to produce 14,000 units of output at the lowest cost?
A)180K,120L
B)180K,0L
C)60K,120L
D)90K,60L
E)none of the above

Question

Refer to the following graph.The price of capital r)is $20.  What combination of K and L should the firm choose to produce 14,000 units of output at the lowest cost?
A)180K,120L 
B)180K,0L 
C)60K,120L 
D)90K,60L 
E)none of the above

Quizplus · Accepted Answer

To produce 14,000 units of output at the lowest cost, the firm should choose the combination of K and L where the isocost line (the line representing the total cost with a fixed budget at $20) is tangent to the isoquant (the line representing all possible combinations of K and L that yield 14,000 units of output). This occurs at point D, where the firm should use 90 units of capital (K) and 60 units of labor (L). Any other combination of K and L would either result in a higher cost or a lower output level.

Refer to the Following Graph