FIGURE 8-4
-Refer to Figure 8-4.The firm is initially producing 1000 units and minimizing its production cost at point B.Suppose the prices of capital and labour each fall by 20%.If the firm wishes to continue producing the same level of output it will
A)move toward point A.
B)remain at point B.
C)move toward point C.
D)move toward point D.
E)move to the left of point B.

Question

FIGURE 8-4
-Refer to Figure 8-4.The firm is initially producing 1000 units and minimizing its production cost at point B.Suppose the prices of capital and labour each fall by 20%.If the firm wishes to continue producing the same level of output it will
A)move toward point A. 
B)remain at point B. 
C)move toward point C. 
D)move toward point D. 
E)move to the left of point B.

Quizplus · Accepted Answer

Since the firm wishes to continue producing the same level of output and both the prices of capital and labour have fallen by the same percentage, the total cost of production will also fall by 20%. This means that the firm can continue producing at the same level of output while still minimizing production costs at point B. Therefore, the firm would remain at point B.

FIGURE 8-4 -Refer to Figure 8-4.The Firm Is Initially Producing 1000 Units