The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8- 6
-Refer to Figure 8- 6. Suppose there is a change in relative factor prices and the cost- minimizing method of producing 2000 golf tees is now at point D. If the total cost of producing 2000 golf tees is still $60, it must be the case that
A) the price of labour rose and the price of capital fell.
B) the price of labour fell and the price of capital remained constant.
C) the price of labour and capital both fell.
D) the price of labour fell and the price of capital rose.
E) the price of labour and capital both rose.

Question

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.  FIGURE 8- 6
-Refer to Figure 8- 6. Suppose there is a change in relative factor prices and the cost- minimizing method of producing 2000 golf tees is now at point D. If the total cost of producing 2000 golf tees is still $60, it must be the case that
A) the price of labour rose and the price of capital fell. 
B) the price of labour fell and the price of capital remained constant. 
C) the price of labour and capital both fell. 
D) the price of labour fell and the price of capital rose. 
E) the price of labour and capital both rose.

Quizplus · Accepted Answer

If the cost-minimizing method shifts to point D while maintaining the same total cost, it suggests that the price of labor fell and the price of capital rose, leading to a substitution of labor for capital.

The Figure Below Shows the Isocost Lines and the Isoquant