The slope of the isocost line tells the firm how much
A) capital must be reduced to keep total cost constant when hiring one more unit of labor.
B) capital must be increased to keep total cost constant when hiring one more unit of labor.
C) more expensive a unit of capital costs relative a unit of labor.
D) the isocost curve will shift outward if the firm wishes to produce more.

Question

Quizplus · Accepted Answer

The slope of the isocost line represents the rate at which capital must be reduced (or substituted) for labor to keep total costs constant when one more unit of labor is hired. This is because the isocost line is a budget constraint showing all combinations of labor and capital that can be purchased for a given total cost.

The Slope of the Isocost Line Tells the Firm How