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Microeconomics II
book

Microeconomics II

by D.N. Dwivedi
August 2011
Intermediate to advanced content levelIntermediate to advanced
368 pages
14h 51m
English
Pearson India
Content preview from Microeconomics II
276 Chapter 13
We know that marginal product ratio (MP
L
/MP
K
) equals the marginal rate of technical substitution
(MRTS). erefore, rm’s optimum combination of inputs is given by the condition
MRTS
L,K
= P
L
/P
K
While MRTS
L
,
K
is given by the slope of the isoquants, factor-price ratio (P
L
/P
K
) is given by the slope of
the factor-price line labelled w
1
r
1
and w
2
r
2
. As shown in Figure 13.6, at point A,
MRTS MRTS
L,K
F
L,K
C
L K
= = =P P w r/ /
erefore, point A gives the optimum combination of inputs and producer’s equilibrium. A similar
situation is shown at point C. e point at which rms end up ultimately combining labour and capital
depends ...
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Publisher Resources

ISBN: 9788131797655