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Optimal capital labor ratio and elasticities

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1.If the price of capital is $24, the price of labor is $15, and the marginal product of capital is 16. Using the above information, answer the following

a- The least costly combination of capital and labor requires that the marginal product of labor be ________.?
b- At the least cost point in a, the slope of the isocost line will be______ ?

2.The demand equation is: Qd = 500 - 1/2 P.
Calculate the point price elasticity of demand when price is $100.
Calculate the arc price elasticity of demand when price increases from 100 to $300.

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Solution Summary

There are two problems. solution to first problem explains the steps to find marginal product of labor for optimal combination of labor and capital combination. Solution to second problem describes the steps to find point and arc elasticity of demand.

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Solution:

a- The least costly combination of capital and labor requires that the marginal product of labor be ________.?

For least cost MPL/w = MPK/r
Here we have r=24 w=15
MPK=16
MPL = 15*16/24
MPL = 10

b- At the least cost point in a, the slope of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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