Suppose the price of capital and labor remain constant.As a firm's expenditures for capital and labor increase, its isocost line
A)shifts out parallel to the original isocost line.
B)shifts in parallel to the original isocost line.
C)rotates outward on the Y-intercept.
D)rotates outward on the X-intercept.

Question

Quizplus · Accepted Answer

When the price of capital and labor remain constant, an increase in the expenditure for either of the factors would cause the isocost line to shift out parallel to the original isocost line. This is because the firm can now afford to buy more units of the factor, keeping the total cost constant.

Suppose the Price of Capital and Labor Remain Constant