The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5
-Refer to Figure 8- 5. Given the information provided about the isocost lines, we know that the per unit price of capital is _ and the per unit price of labour is _ .
A) $20; $50
B) not determinable; not determinable
C) $5; $2
D) $50; $20
E) $2; $5

Question

The figure below shows the isocost lines facing a firm producing golf tees.  FIGURE 8- 5
-Refer to Figure 8- 5. Given the information provided about the isocost lines, we know that the per unit price of capital is _ and the per unit price of labour is _ .
A) $20; $50 
B) not determinable; not determinable 
C) $5; $2 
D) $50; $20 
E) $2; $5

Quizplus · Accepted Answer

The slope of each isocost line represents the ratio of the prices of labor and capital. Therefore, the slope of the isocost line that intersects the y-axis at $100 (which represents the total cost of using only capital) is -100/20 = -5. This means that the per unit price of capital is $20 ($100/5). Similarly, the slope of the isocost line that intersects the x-axis at $50 (which represents the total cost of using only labor) is -50/25 = -2. This means that the per unit price of labor is $2 ($50/25). Therefore, the answer is C, $5 for the capital and $2 for the labor.

The Figure Below Shows the Isocost Lines Facing a Firm