FIGURE 8- 4
-Refer to Figure 8- 4,with the isoquants and isocost line as shown.A firm that is producing at point A can reduce its costs for producing 1000 units by employing
A)less capital and less labour.
B)less capital and more labour.
C)more capital and less labour.
D)less capital and the same labour.
E)more capital and more labour.

Question

FIGURE 8- 4 
-Refer to Figure 8- 4,with the isoquants and isocost line as shown.A firm that is producing at point A can reduce its costs for producing 1000 units by employing
A)less capital and less labour. 
B)less capital and more labour. 
C)more capital and less labour. 
D)less capital and the same labour. 
E)more capital and more labour.

Quizplus · Accepted Answer

Point A is on a higher isocost line compared to the isocost line passing through point B. This indicates that the firm can reduce its costs by moving to a lower isocost line. This implies using less capital and more labor as the slope of the isocost line is the ratio of the prices of capital and labor. Thus, the firm can reduce costs by employing less expensive inputs in the production process.