Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8
-Refer to Figure 7.8 The firm's isocost line could shift from AB to CD if
A) the price of capital increased.
B) the firm's total expenditures decreased by 25%.
C) the price of capital and labor each decreased by 33%.
D) the firm's total expenditures increased by 33% or the price of capital and labor each decreased by 25%.

Question

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.  Figure 7.8
-Refer to Figure 7.8 The firm's isocost line could shift from AB to CD if
A) the price of capital increased. 
B) the firm's total expenditures decreased by 25%. 
C) the price of capital and labor each decreased by 33%. 
D) the firm's total expenditures increased by 33% or the price of capital and labor each decreased by 25%.

Quizplus · Accepted Answer

The isocost line represents the combinations of inputs (capital and labor) that a firm can purchase for a given total cost. A shift from AB to CD, which implies the firm can afford more of both inputs, could occur if the firm's total expenditures increased (allowing it to buy more inputs at the same prices) or if the prices of both inputs decreased (allowing it to buy more of each input for the same total expenditure).

Refer to the Information Provided in Figure 7