The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5
-Refer to Figure 8- 5. If the cost- minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3, we can say that
A) the per unit prices of capital and labour have each doubled.
B) the firm is producing more efficiently.
C) the output of golf tees has doubled.
D) the firm's level of output has increased.
E) the per unit prices of capital and labour have fallen by 50 per cent.

Question

The figure below shows the isocost lines facing a firm producing golf tees.  FIGURE 8- 5
-Refer to Figure 8- 5. If the cost- minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3, we can say that
A) the per unit prices of capital and labour have each doubled. 
B) the firm is producing more efficiently. 
C) the output of golf tees has doubled. 
D) the firm's level of output has increased. 
E) the per unit prices of capital and labour have fallen by 50 per cent.

Quizplus · Accepted Answer

Moving from isocost line 1 to isocost line 3 implies that the cost of producing has gone up. However, since the firm is still minimizing its cost of production, it means that it is producing more output at this new cost level, i.e., the firm's level of output has increased.

The Figure Below Shows the Isocost Lines Facing a Firm