Assume that a firm spends $500 on two inputs, labor and capital. If the wage rate is $20 per hour and the cost of capital is $25

Question

Marrrta [24]

3 years ago

13

Assume that a firm spends $500 on two inputs, labor and capital. If the wage rate is $20 per hour and the cost of capital is $25

per hour, the slope of isocost curve will equal
a) -0.05
b) -500
c) -20
d) -4/5

Business

2 answers:

Mrrafil [7] · Answer 1 · 2022-07-03T16:55:03+03:00

Answer: The correct option is D. -4/5

Explanation:

From the question above, we have:

Cost on input = $500

Wage rate = $20 per hour

Cost of capital = $25 per hour

The formula for slope of isocost is given as:

Slope of isocost = -(w/r)

Where,

W = wage rate

r = rental cost of capital.

Therefore, we have:

Slope of isocost curve = -(20/25)

= -0.8 or -4/5

Zolol [24] · Answer 2 · 2022-07-03T14:44:28+03:00

Answer:

D. -4/5

Explanation:

Given that

Wage rate = $20 per hour

Cost of capital = $25 per hour

Recall that,

Slope of isocost = -(w/r)

Where,

W = wage rate

r = rental cost of capital.

Thus,

Slope of isocost curve

= -(20/25)

= -0.8 or -4/5

Note that, the negative of the ratio is the price of the two inputs. Also isocost is a line showing the various combinations of inputs which cost the same amount.