Starting from a point of tangency between an isoquant and an isocost line, a movement along the isoquant will
A) increase output but have no effect on cost
B) decrease output but have no effect on cost
C) increase both output and cost
D) have no effect on output but increase cost
E) have no effect on output but decrease cost

Question

Quizplus · Accepted Answer

Starting from a point of tangency between an isoquant and an isocost line, a movement along the isoquant will have no effect on output because staying on the same isoquant means producing the same level of output. However, since the isocost line represents the maximum amount a firm can spend on inputs while producing a given output level, moving along the isoquant requires the firm to reallocate its input combination, which may result in higher costs. Therefore, the correct choice is D: have no effect on output but increase cost.

Starting from a Point of Tangency Between an Isoquant and an Isocost