If Q represents a firm's level of output,W represents the wage paid to labor (L)and R is the cost of capital (K),then which of the following represents the firm's isocost line?
A) C = FC + VC(Q)
B) C = FC(Q) + VC(Q)
C) C = WL + RK
D) C = (W + R)Q

Question

Quizplus · Accepted Answer

The isocost line represents all the combinations of labor (L) and capital (K) inputs that a firm can afford to hire given its total cost (C), which is equal to the wage paid to labor (W) multiplied by the amount of labor used (L) and the cost of capital (R) multiplied by the amount of capital used (K). Therefore, the equation C = WL + RK represents the firm's isocost line where C is the total cost, W is the wage rate, L is the amount of labor used, R is the cost of capital, and K is the amount of capital used.

If Q Represents a Firm's Level of Output,W Represents the Wage