Consider a firm's isocost line where labor is measured on the horizontal axis and capital on the vertical axis.If everything else is unchanged,a fall in the price of labor would:
A)increase the horizontal intercept of the isocost line.
B)shift the isocost line outward away from the origin.
C)shift the isocost line inward toward the origin.
D)increase the vertical intercept of the isocost line.

Question

Quizplus · Accepted Answer

A fall in the price of labor would increase the relative cost of capital, so to achieve the same level of output, the firm would need to use more capital and less labor. Therefore, the firm's isocost line would shift inward toward the origin, resulting in a decrease in the horizontal intercept of the line.

Consider a Firm's Isocost Line Where Labor Is Measured on the Horizontal