The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8- 6
-Refer to Figure 8- 6. Suppose the firm is currently producing at point E and the prices of capital and labour each increase by 30 percent. If the firm wants to minimize the cost of producing the same level of output, the firm's chosen factor combination would be at point
A) G.
B) E.
C) not determinable from the information provided.
D) A.
E) C.

Question

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.  FIGURE 8- 6
-Refer to Figure 8- 6. Suppose the firm is currently producing at point E and the prices of capital and labour each increase by 30 percent. If the firm wants to minimize the cost of producing the same level of output, the firm's chosen factor combination would be at point
A) G. 
B) E. 
C) not determinable from the information provided. 
D) A. 
E) C.

Quizplus · Accepted Answer

If the prices of both capital and labor increase by the same percentage, the cost-minimizing combination of inputs remains unchanged, so the firm would continue to produce at point E.

The Figure Below Shows the Isocost Lines and the Isoquant