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Figure 6.5
-(Figure 6.5) Suppose a firm spends $4,000 per day producing a good. The wage rate per worker is $200 per day and rental rate per unit of capital is $500 per day. The firm's isocost line at the current expenditure level is represented by:

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Figure 6.5

-(Figure 6.5) Suppose a firm spends $4,000 per day producing a good. The wage rate per worker is $200 per day and rental rate per unit of capital is $500 per day. The firm's isocost line at the current expenditure level is represented by:

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The isocost line represents all the possible combinations of capital and labor that can be purchased at the given expenditure level. The equation for this isocost line is: Expenditure = 500K + 200L where K is the amount of capital and L is the amount of labor. As the firm spends $4,000 per day producing a good, we can substitute this value for expenditure and solve for K: 4000 = 500K + 200L K = (4000 - 200L) / 500 The resulting isocost line is a straight line with a negative slope (-2.5) and intercepts with the K-axis and L-axis at (8,0) and (0,20) respectively. Only option C (C₃) corresponds to this isocost line.

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