If labor is measured along the horizontal axis and capital is measured along the vertical axis,an increase in the wage rate will cause the isocost line to:
A) rotate clockwise, causing the firm to use less labor and more capital.
B) rotate counterclockwise, causing the firm to use less labor and more capital.
C) rotate clockwise, causing the firm to use less capital and more labor.
D) rotate counterclockwise, causing the firm to use less capital and more labor.

Question

Quizplus · Accepted Answer

An increase in the wage rate makes labor more expensive relative to capital, causing the isocost line to rotate clockwise. This rotation reflects the firm substituting labor with capital, thus using less labor and more capital.

If Labor Is Measured Along the Horizontal Axis and Capital