FIGURE 8-4
-Refer to Figure 8-4,with the isoquants and isocost line as shown.A firm that is producing at point A can reduce its costs for producing 1000 units by employing
A)less capital and less labour.
B)more capital and less labour.
C)less capital and more labour.
D)more capital and more labour.
E)less capital and the same labour.

Question

FIGURE 8-4
-Refer to Figure 8-4,with the isoquants and isocost line as shown.A firm that is producing at point A can reduce its costs for producing 1000 units by employing
A)less capital and less labour. 
B)more capital and less labour. 
C)less capital and more labour. 
D)more capital and more labour. 
E)less capital and the same labour.

Quizplus · Accepted Answer

Point A represents a combination of capital and labour that the firm is currently using to produce 1000 units. In order to reduce costs, the firm would need to move towards the isocost line, which represents the same cost of production.

To do this, the firm could either choose a combination of capital and labour that is on the isocost line but below point A, or a combination that is on the same isoquant as point A but is closer to the isocost line.

Option C, which involves using less capital and more labour, would allow the firm to move towards the isocost line by reducing the more expensive factor of production (capital) and increasing the less expensive factor (labour). This would result in a lower cost of production for 1000 units.

Option A, using less capital and less labour, would result in reducing both factors of production, which might not be efficient for the firm. Option B and D, using more capital and less labour, or more capital and more labour, respectively, would result in higher costs of production for the same level of output. Option E, using less capital and the same labour, would not result in a significant cost reduction.

FIGURE 8-4 -Refer to Figure 8-4,with the Isoquants and Isocost Line as Line