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

Question

Karsyn Reilly

Business

11 February, 04:01

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

+3

Answers (2)

Know the Answer?

Kinsley Carpenter · Answer 1

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.

Roman Simon · Answer 2

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

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 equala) - 0.05b) - 500c) - 20d) - 4/5

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