Suppose the price of capital and labour remain constant.As a firm's expenditures for capital and labour 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

If a firm's expenditures for capital and labour increase, its total cost will also increase, and it will need to spend more to reach the same level of output. Since both the price of capital and labour remain constant, the slope of the isocost line will not change, and the line will shift out parallel to the original isocost line.

Suppose the Price of Capital and Labour Remain Constant