With output held constant, for a combination of inputs to be a least cost combination, the slopes of an isocost line and the isoquant curve must be equal at the point the where the two curves touch.

Question

Quizplus · Accepted Answer

This is true according to the concept of marginal rate of technical substitution (MRTS). At the point where the two curves touch, the MRTS equals the ratio of input prices, which is the slope of the isocost line. Therefore, for the combination of inputs to be a least cost combination, the slope of the isoquant must also be equal to the ratio of input prices, which is the slope of the isocost line.

With Output Held Constant, for a Combination of Inputs to Be