Question

In: Economics

Suppose a firm has the production function, Q = 12KL. It has a contract to produce...

Suppose a firm has the production function, Q = 12KL. It has a contract to produce 144 units of output per day. One way to do is to use 3 units of capital (K) and 4 units of labor (L). Suppose a unit of labor costs $2 (wage = w) while a unit of capital costs $3 (r).

What is the Marginal Rate of Technical Substitution (MRTS) at this specific input ratio, i.e., K = 3 and L = 4?

A) MRTS = 1/3

B) MRTS = 1/2

C) MRTS = 3/4

D) We do not have sufficient information to find out the value of MRTS at this combination.

Solutions

Expert Solution

Correct option - (C) 3/4

Solution is in the below pic.

Rahul Sunny answered 2 years ago
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