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 slope of isocost CD is
A) greater than the slope of isocost AB.
B) less than the slope of isocost AB.
C) equal to the slope of isocost AB.
D) indeterminate from this information, as the prices of capital and labor are not given.

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 slope of isocost CD is
A) greater than the slope of isocost AB. 
B) less than the slope of isocost AB. 
C) equal to the slope of isocost AB. 
D) indeterminate from this information, as the prices of capital and labor are not given.

Quizplus · Accepted Answer

The slope of an isocost line is determined by the ratio of the prices of labor to capital. Since all isocost lines represent combinations of labor and capital that can be purchased for a given total cost, given constant prices of labor and capital, the slope of all isocost lines must be the same. This slope reflects the trade-off between capital and labor costs, irrespective of the total amount of money being spent.

Refer to the Information Provided in Figure 7