Suppose that a firm is operating at a point where MRTS LK = 2, P L = 3, P K = 1.5.What is the slope of the isoquant on which this firm operates? What is the economicinterpretation its valu

Suppose that a firm is operating at a point where MRTS

LK

= 2, P

L

= 3, P

K

= 1.

5.

What is the slope of the isoquant on which this firm operates? What is the economic

interpretation its value?

6.

What is the slope of the iso-cost line on which this firm operates? What is the economic

interpretation of its value?

7.

Does this firm maximize the amount of output given its expenditure on inputs? If not, explain

how this firm could increase its output without changing its total expenditure on inputs.

8.

In a diagram measuring labour on the horizontal axis and capital in the vertical axis, draw the

point at which this firm operates (label it A), and

i.

the isoquant curve on which this firm operates,

ii.

the iso-cost curve on which this firm operates,

iii.

a possible expansion path for this firm.

9.

On the above diagram (the one you used to answer question 8), show

i.

the intersection point between the expansion path and the above iso-cost curve (label it B),

ii.

the intersection point between the expansion path and the above isoquant (label it C),

and

iii.

draw the isoquant that passes through point B and the iso-cost curve passing through C

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