Figure 11-7
-Refer to Figure 11-7.The lines shown in the diagram are isocost lines.If the price of labor is $50 per unit,what is the price of capital along the isocost CE?

Question

Figure 11-7 
-Refer to Figure 11-7.The lines shown in the diagram are isocost lines.If the price of labor is $50 per unit,what is the price of capital along the isocost CE?

Quizplus · Accepted Answer

Along the isocost CE, the total cost is $1,000. Given the price of labor is $50 per unit, the number of units of labor required to produce at this cost is 20 (since 20 x $50 = $1,000). Therefore, the slope of the isocost line is -20/10 or -2. Given that the slope of the isocost line is equal to the ratio of the prices of capital and labor, the price of capital along isocost CE is $25 per unit (since $50/-2 = -$25 or $25 per unit in absolute terms). Thus, the answer is C.

Figure 11-7 -Refer to Figure 11-7.The Lines Shown in the Diagram Are