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

Question

Quizplus · Accepted Answer

The isocost line represents all the possible combinations of labour (L) and capital (K) that can be hired by the firm while keeping the total cost constant. The equation C(Q) = WL + RK represents the total cost of production, where W represents the wage paid to labour and R is the cost of capital. Therefore, this equation represents the firm's isocost line. Option A represents the total variable cost (VC) and fixed cost (FC) of production, while option B represents only the total cost, but it does not break down into labour and capital costs. Option D represents only the sum of wages and capital costs but does not take into account the level of output.

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