Assume that the relative prices of capital and labor have not changed. As a firm's expenditures for capital and labor decrease, its isocost line
A) shifts out parallel to the original isocost line.
B) shifts in parallel to the original isocost line.
C) rotates outward on the Y-intercept.
D) rotates outward on the X-intercept.

Question

Quizplus · Accepted Answer

Isocost lines represent combinations of capital and labor that a firm can purchase for a given total cost. If a firm's expenditures for capital and labor decrease, it means the firm has a lower total cost to spend on these inputs. Therefore, the isocost line shifts inward (or towards the origin) parallel to the original line, indicating that the firm can now afford fewer combinations of capital and labor at the new, lower level of expenditure.

Assume That the Relative Prices of Capital and Labor Have