Ally owns a shoe store. The market wage is $10 per hour, and the cost of capital is $2 per week for every $1,000 of capital borrowed. Consider the isocost line associated with spending $8,000 per week, and let the y-axis be the amount of capital borrowed in $1,000s. Which of the following is not true?
A)If Ally borrows no capital, she can employ 800 hours of work.
B)If Ally employs no workers, she can borrow $4 million of capital.
C)If Ally employs 600 hours of work, she can borrow $1 million of capital.
D)If Ally employs 400 hours of work, she can borrow $3 million of capital.
E)The slope of the isocost line is -5.

Question

Quizplus · Accepted Answer

The equation for the isocost line is given by $8,000 = 10x + 2y, where x is the number of hours worked and y is the amount of capital borrowed in thousands. Solving for y, we get y = 4,000 - 5x. Therefore, the slope of the isocost line is -5. 
A) If Ally borrows no capital, then y = 0, and we can solve for x to get x = 800. This statement is true. 
B) If Ally employs no workers, then x = 0, and we can solve for y to get y = 4,000. However, this represents $4 million, so this statement is true. 
C) If Ally employs 600 hours of work, then x = 600, and we can solve for y to get y = 1,000. This statement is true. 
D) If Ally employs 400 hours of work, then x = 400, and we can solve for y to get y = 3,000. This statement is false, as the correct amount of capital that can be borrowed is $3 million, not $3,000. 
E) This statement is true, as the slope of the isocost line is -5. 
Therefore, the correct answer is D.

Ally Owns a Shoe Store