If labor costs $10 per unit and machines rent for $20 apiece, the slope of an isocost line might imply a substitution of:
A) one unit of labor for one unit of machinery.
B) one unit of labor for two units of machinery.
C) one unit of machinery for two units of labor.
D) two units of machinery for three units of labor.

Question

Quizplus · Accepted Answer

The slope of an isocost line is determined by the ratio of the prices of labor and machinery. Here, labor costs $10 and machinery costs $20, so the slope is -10/20 = -1/2. This implies that one unit of machinery can be substituted for two units of labor.

If Labor Costs $10 Per Unit and Machines Rent for $20