Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. If the price of labor is $5 per hour and the firm can afford to operate its copy machine for 5,000 hours if it hires no labor, the slope of an isocost line when labor is measured on the horizontal axis is
A) -5/8
B) -8/5
C) -1/5
D) -5
E) -1/4

Question

Quizplus · Accepted Answer

The slope of an isocost line is equal to the negative of the ratio of the price of labor to the price of capital. In this case, the price of labor is $5 per hour and the price of capital is $40,000 / 5,000 hours = $8 per hour. Therefore, the slope of the isocost line is -5/8.

Upon Opening a Printing and Copy Shop, a Firm Budgets