Use the following figure to answer the question : Figure 16-1 :shows the isoquants,IQ 1 and IQ 2 ,for a competitive firm.

-Refer to Figure 16-1.The firm was initially at point A.It will move to point B if:
A)the price of the final product increases.
B)the wage rate increases.
C)the cost of capital rises.
D)the demand for the final product falls.

Question

Use the following figure to answer the question : Figure 16-1 :shows the isoquants,IQ 1 and IQ 2 ,for a competitive firm.

-Refer to Figure 16-1.The firm was initially at point A.It will move to point B if:
A)the price of the final product increases. 
B)the wage rate increases. 
C)the cost of capital rises. 
D)the demand for the final product falls.

Quizplus · Accepted Answer

According to the figure, moving from point A to point B requires an increase in the amount of capital and a decrease in the amount of labor. This means the firm needs to substitute capital for labor. As a result, an increase in the wage rate (the price of labor) will encourage the firm to use less labor and more capital, which can lead to the movement from point A to point B. Therefore, the best choice is B.

Use the Following Figure to Answer the Question : Figure