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) more capital and less labour.
C) more capital and more labour.
D) less capital and more labour.
E) less capital and the same 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) more capital and less labour. 
C) more capital and more labour. 
D) less capital and more labour. 
E) less capital and the same labour.

Quizplus · Accepted Answer

Point A is not on the lowest isocost line for producing 1000 units, which means the firm can reduce costs by moving to a lower isocost line. To do so, it needs to reduce the cost of inputs without reducing output, which can be achieved by using less capital (because capital is more expensive than labor in this case) and more labor. Therefore, the best choice is to use less capital and more labor, which is option D.

FIGURE 8- 4 -Refer to Figure 8- 4, with the Isoquants and Isocost