Assume that the relative prices of capital and labor have not changed. As a firm's expenditures for capital and labor increase, its isocost line
A) shifts out parallel to the original isocost line.
B) shifts in parallel to the original isocost line.
C) rotates outward on the Y-intercept.
D) rotates outward on the X-intercept.

Question

Quizplus · Accepted Answer

When a firm's expenditures for capital and labor increase without a change in the relative prices of capital and labor, its isocost line shifts outward in a parallel manner. This is because the firm can now afford more of both inputs at the same price ratio, indicating an increase in total expenditure while maintaining the same slope (price ratio).

Assume That the Relative Prices of Capital and Labor Have