FIGURE 8- 4
-Refer to Figure 8- 4. The firm is initially minimizing the cost of producing 1000 units of output. Suppose the factor prices then change such that the price of capital (K) rises and the price of labour
(L) falls. If the firm decides to keep its output unchanged, it will move toward the point
A) A.
B) B.
C) C.
D) D.
E) unknown as there is insufficient information to know

Question

FIGURE 8- 4
-Refer to Figure 8- 4. The firm is initially minimizing the cost of producing 1000 units of output. Suppose the factor prices then change such that the price of capital (K) rises and the price of labour
(L) falls. If the firm decides to keep its output unchanged, it will move toward the point
A) A. 
B) B. 
C) C. 
D) D. 
E) unknown as there is insufficient information to know

Quizplus · Accepted Answer

When the price of capital rises and the price of labour falls, the firm will want to use relatively more labour and relatively less capital to produce the same output. Point C represents this new combination of inputs at the same level of output, which minimizes cost under the new prices. Therefore, the firm will move towards point C to minimize costs.

FIGURE 8- 4 -Refer to Figure 8- 4. the Firm Is Initially Minimizing