Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. The horizontal (labor) intercept of the isocost line is 3 million, and the vertical (robot) intercept is 5 million. The slope of the isocost line is
A) -6.67
B) -2.4
C) -1.67
D) -60
E) -5.3

Question

Quizplus · Accepted Answer

The formula for the slope of an isocost line is:

Slope = - (Cost of one factor of production) / (Cost of the other factor of production)

In this case, the cost of labor is $20 per hour and the cost of using robots is $12 per hour. So:

Slope = - ($20 per hour) / ($12 per hour) = -5/3 = -1.67

So the answer is (C).

To determine the best choice, we would need more information about the production process and the desired level of output. However, in general, firms will choose to produce at the point where the isocost line is tangent to the production possibility frontier (PPF), which represents the maximum level of output that can be produced with the given inputs. This point is known as the cost-minimizing point, and it represents the most efficient combination of factors of production.