The absolute value of the slope of an isocost line equals the ratio of
A)the marginal productivities of the two inputs.
B)the prices of the two inputs.
C)the marginal utilities of the two inputs.
D)the quantities of the two inputs.

Question

Quizplus · Accepted Answer

The slope of an isocost line represents the rate at which the firm can exchange one input for another while keeping the total cost constant. The absolute value of the slope is equal to the ratio of the prices of the two inputs. This is because the slope represents the opportunity cost of using one input in terms of the other input, and opportunity cost is measured in terms of forgone alternatives, which in this case is the price of the other input. The other choices are not directly related to the slope of the isocost line.

The Absolute Value of the Slope of an Isocost Line