Concept:A firm is in equilibrium when it selects the input combination that minimizes cost for a given output or maximizes output for a given cost.
Explanation:The isoquant represents all combinations of labour and capital that yield the same level of output.
The isocost line represents all combinations of labour and capital that can be purchased at the same total cost.
At equilibrium, the marginal rate of technical substitution equals the ratio of input prices.
This equality is achieved at the point where the isoquant just touches the isocost line, meaning their slopes are equal.
At that tangent point, no change in the input mix can reduce cost or increase output.
Answer:Tangent to the isocost line.