If labour is measured along the horizontal axis and capital is measured along the vertical axis, an increase in the wage rate will cause the isocost line to
A) Rotate to the left along the labour axis, causing the firm to use less labour and more capital
B) Rotate to the right along the labour axis, causing the firm to use less labour and more capital
C) Rotate to the left along the labour axis, causing the firm to use less capital and more labour
D) Rotate to the right along the labour axis, causing the firm to use less capital and more labour

Question

Quizplus · Accepted Answer

An increase in the wage rate makes labour more expensive relative to capital, causing the isocost line to rotate to the left along the labour axis. This reflects the higher cost of labour, leading firms to use less labour and more capital to minimize costs.

If Labour Is Measured Along the Horizontal Axis and Capital