Asked by Megan Lawless on Jun 27, 2024
Verified
Refer to Figure 7.9. The firm's isocost line could shift from AB to CD if
A) the price of capital decreased.
B) the firm's total expenditures increased by 50%.
C) the price of capital and labor each decreased by 33.3%.
D) either B or C
Isocost Line
A graphical representation in economics that shows all possible combinations of inputs that can be purchased for a given total cost.
Capital
Assets including money, machinery, and structures employed in the creation of products and services.
Total Expenditures
The sum of all expenses and spending by an individual, organization, or government within a specified period.
- Assess the implications of variations in input costs on the location and inclination of isocost lines.
- Examine the effects of expenditure fluctuations on the placement of isocosts.
- Identify the factors that cause shifts in isocost lines.
Verified Answer
TM
Traveon MurrayJul 01, 2024
Final Answer :
D
Explanation :
The isocost line represents the combinations of inputs (capital and labor) that a firm can purchase for a given total cost. A shift from AB to CD, which implies the firm can afford more of both inputs, could occur if the firm's total expenditures increased (option B) or if the prices of both inputs decreased significantly (option C), making each unit of input cheaper and thus allowing the purchase of more inputs for the same total cost.
Learning Objectives
- Assess the implications of variations in input costs on the location and inclination of isocost lines.
- Examine the effects of expenditure fluctuations on the placement of isocosts.
- Identify the factors that cause shifts in isocost lines.