Final answer:
When the isocost line is tangent to the isoquant, the marginal rate of substitution equals the price ratio.
Step-by-step explanation:
When the isocost line is tangent to the isoquant, the correct statement is a) Marginal rate of substitution equals the price ratio.
At the point of tangency, the slope of the isoquant, which represents the marginal rate of technical substitution, is equal to the slope of the isocost line, which represents the price ratio. This means that the rate at which the firm substitutes one input for another is equal to the ratio of their prices.
For example, if the price of labor is $10 and the price of capital is $20, then for the firm to be in cost minimization, the marginal rate of technical substitution between labor and capital should be equal to 2 (10/20).