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3 January, 23:46

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

+5
Answers (2)
  1. 4 January, 01:09
    0
    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
  2. 4 January, 01:56
    0
    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.
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Home » Business » 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
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