The slope of an isocost line is equal to:
A) -(wage rate/rental rate of capital).
B) (wage rate/rental rate of capital).
C) -(rental rate of capital/wage rate).
D) (rental rate of capital/wage rate).

Question

Quizplus · Accepted Answer

The slope of an isocost line, which represents all combinations of labor and capital that can be purchased for a given total cost, is equal to the negative ratio of the wage rate to the rental rate of capital. This is because an isocost line is derived from the equation C = wL + rK, where C is total cost, w is the wage rate, L is the amount of labor, r is the rental rate of capital, and K is the amount of capital. Rearranging this equation to solve for K in terms of L and then taking the derivative of K with respect to L gives the slope as -(w/r).

The Slope of an Isocost Line Is Equal To