refer to the following graph:

-(appendix)If the two isoquants represent profit maximizing levels of output for two different wage rates,the move from point A to point B represents the:
A)output effect of a reduction in the wage
B)output effect of an increase in the wage
C)substitution effect of a reduction in the wage
D)substitution effect of an increase in the wage

Question

refer to the following graph:

-(appendix)If the two isoquants represent profit maximizing levels of output for two different wage rates,the move from point A to point B represents the:
A)output effect of a reduction in the wage 
B)output effect of an increase in the wage 
C)substitution effect of a reduction in the wage 
D)substitution effect of an increase in the wage

Quizplus · Accepted Answer

The move from point A to point B on two different isoquants, when considering changes in wage rates, represents the substitution effect of a reduction in the wage. This is because a lower wage rate makes labor relatively cheaper compared to capital, prompting firms to substitute labor for capital while maintaining or adjusting their level of output, hence the substitution effect.

Refer to the Following Graph