Toyota currently has a marginal rate of technical substitution of MRTS KL = – 0.

Question

Toyota currently has a marginal rate of technical substitution of MRTSKL = – 0.005. The current wage rate is w = ¥2,000. The marginal product of capital is MPK = 0.6 trucks per hour at its new targeted level of output. The market for labor and capital are highly competitive. The average selling price for Toyota’s trucks is P = ¥1,600,000 per truck. The firm is restricting, and considering changing the current amounts of labor and capital used.

What is the current rental rate on capital?

a. r = ¥526,000

b. r = ¥225,000

c. r = ¥308,000

d.         r = ¥960,000

e.         r = ¥1,600,000

Explanation / Answer

answer

Option D. 1600000*.6 = 960000

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