When the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis, the slope of the isocost line is (assuming $W$ is the price of labor and $r$ is the price of capital and production uses only these two inputs)
A) $$- w / r$$
B) $$- \gamma / w$$
C) $M P _ { \Sigma } / M P _ { L}$
D) $M P _ { L } / M R _ { z }$

Question

Quizplus · Accepted Answer

The slope of the isocost line represents the ratio of the prices of the two inputs (labor and capital) needed to produce the same level of output. Therefore, the slope is equal to the negative of the ratio of the prices ($-W/R$) as it is the amount of capital that must be given up (or equivalently, the amount of labor that must be gained) for each unit increase in labor.

When the Level of Capital Is Plotted on the Vertical WWW

When the Level of Capital Is Plotted on the Vertical $W$