The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
FIGURE 8- 6
-Refer to Figure 8- 6.At each of points A,C,E and G on the isoquant map we know that
A)the ratio of the marginal utilities of capital and labour is equal to the ratio of the prices of capital and labour.
B)the firm is at its cost- minimizing position for an output level of 4000 golf tees.
C)the firm can adjust its employment of factors to reduce its total cost,with output unchanged.
D)the firm has adjusted the factor prices to equate the ratio of marginal products of the factors.
E)the ratio of the marginal products of capital and labour is equal to the ratio of the prices of capital and labour.

Question

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
  FIGURE 8- 6
-Refer to Figure 8- 6.At each of points A,C,E and G on the isoquant map we know that
A)the ratio of the marginal utilities of capital and labour is equal to the ratio of the prices of capital and labour. 
B)the firm is at its cost- minimizing position for an output level of 4000 golf tees. 
C)the firm can adjust its employment of factors to reduce its total cost,with output unchanged. 
D)the firm has adjusted the factor prices to equate the ratio of marginal products of the factors. 
E)the ratio of the marginal products of capital and labour is equal to the ratio of the prices of capital and labour.

Quizplus · Accepted Answer

At each point on an isoquant map, the slope of the isocost line tangent to that point gives us the ratio of the prices of capital and labour. Meanwhile, the slope of the isoquant at that point gives us the ratio of the marginal products of capital and labour. Therefore, at points A, C, E and G, where the isoquant is tangent to an isocost line, the ratio of the marginal products of capital and labour is equal to the ratio of the prices of capital and labour (option E). This is the condition for the firm to be cost-minimizing for a given level of output.

The Figure Below Shows the Isocost Lines and the Isoquant