The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if Manny Motors' operating budget decreased?
A) It would shift rightward to a parallel position.
B) It would shift rightward to a nonparallel position.
C) It would shift leftward to a parallel position.
D) It would shift leftward to a nonparallel position.
E) Nothing.

Question

Quizplus · Accepted Answer

The isocost line represents all the possible combinations of labor and robots that can be employed with a given budget. Since the horizontal intercept represents the cost of labor and the vertical intercept represents the cost of robots, a decrease in the operating budget means that less money is available to spend on inputs, including labor and robots. This means that the isocost line will shift leftward, showing that Manny Motors can afford to use fewer inputs. However, the slope of the isocost line remains the same since the relative prices of labor and robots have not changed. Therefore, the isocost line will shift leftward to a parallel position to the original line.

The Horizontal (Labor) Intercept of Manny Motors' Isocost Line Is