The slope of a firm's isocost line is equal to the ratio of
A)the factor prices.
B)the marginal rate of substitution between factors.
C)the marginal products of its factors.
D)product prices.
E)total variable cost to total cost.

Question

Quizplus · Accepted Answer

The slope of an isocost line represents the rate at which the firm can substitute one factor for another while keeping the total cost of production constant. This rate is equal to the ratio of the prices of the two factors, as a higher price for one factor will require a larger decrease in the quantity used to maintain the same cost level as before. Therefore, the correct answer is A, the factor prices.

The Slope of a Firm's Isocost Line Is Equal to the Ratio