Asked by Faith Granville on Jul 16, 2024
Verified
Assume that the relative prices of capital and labor have not changed. As a firm's expenditures for capital and labor decrease, its isocost line
A) shifts out parallel to the original isocost line.
B) shifts in parallel to the original isocost line.
C) rotates outward on the Y-intercept.
D) rotates outward on the X-intercept.
Isocost Line
A graph that shows all the combinations of capital and labor available for a given total cost.
Expenditures
Outflows of money to another person or group to pay for an item or service, or charges incurred during a business operation.
Capital and Labor
The primary factors of production, where capital refers to physical assets used in production, and labor refers to the human effort contributing to the production process.
- Acquire knowledge on the effect of changing input costs on the production choices of a firm.
Verified Answer
OB
octavia bakerJul 23, 2024
Final Answer :
B
Explanation :
Isocost lines represent combinations of capital and labor that a firm can purchase for a given total cost. If a firm's expenditures for capital and labor decrease, it means the firm has a lower total cost to spend on these inputs. Therefore, the isocost line shifts inward (or towards the origin) parallel to the original line, indicating that the firm can now afford fewer combinations of capital and labor at the new, lower level of expenditure.
Learning Objectives
- Acquire knowledge on the effect of changing input costs on the production choices of a firm.