Question

consider two iso quant curves , combination A on iso quant curve 1 has 6 units of capital (K) and 3 units of labor

(L) , produce , output Q1 = 90 unit of x . combination B on iso quant curve 2 , has (6.k and 4.L) produces Q2 = 115

unit of x

Which of the following may be deduced from the above information?

Select one:

a. given capital is fixed at 6 units, the average product of labor with three units of labor is 30

b. given capital is fixed at 6 units and the firm employs 3 units of labor, the marginal product of the

fourth unit of labor is 25

c. the marginal rate of technical substitution at A is (approximately) equal to two

d. all of the above

Answer 1

option d all of the above is the correct option. When the capital is fixed at 6 , the marginal product of labour is 25 units because the fourth unit produces 115-90 = 25 units of output. Thus, option b is correct. Also, at the fixed capital of 6, the average product of labour with three units of labour is 90/3 = 30 units. Thus, option a is also correct. The marginal rate of technical substitution at A is approximately 2 because it requires double amount of capital than labour. Thus, c option is also correct. Therefore , d option which is all of the above is the correct option for this question.