Suppose that the price of labor (P_L) is $10 and the price of capital (P_K) is $20. What is the equation of the isocost line corresponding to a total cost of $100? A) P_L + 20P_K B) 100 = 10L + 20K C) 100 = 30(L+K) D) 100 + 30 (P_L + P_K) E) none of the above

Question

Quizplus · Accepted Answer

Total cost (TC) equals the product of the price of labor (PL) and the quantity of labor (L), plus the product of the price of capital (PK) and the quantity of capital (K). 
Therefore, TC = PL x L + PK x K.
If we substitute the given prices and the total cost of $100, we get:
$100 = $10L + $20K
Simplifying, we get:
5L + 10K = 50
Dividing by 5, we get:
L + 2K = 10
This is the equation of the isocost line with a total cost of $100.

Suppose That the Price of Labor (PL) Is $10 and the Price

Suppose That the Price of Labor (P_L) Is $10 and the Price