Refer to the information provided in Figure 7.10 below to answer the questions that follow. Figure 7.10
-Refer to Figure 7.10. The firm's isocost line would shift from CE to CD if
A) the price of capital rises.
B) the firm's total expenditure on inputs decreased.
C) the price of labor rises.
D) either the price of labor fell or the firm's total expenditure on inputs decreased.

Question

Refer to the information provided in Figure 7.10 below to answer the questions that follow.  Figure 7.10
-Refer to Figure 7.10. The firm's isocost line would shift from CE to CD if
A) the price of capital rises. 
B) the firm's total expenditure on inputs decreased. 
C) the price of labor rises. 
D) either the price of labor fell or the firm's total expenditure on inputs decreased.

Quizplus · Accepted Answer

According to the graph, CD is a lower isocost line compared to CE, which means that the firm's total expenditure on inputs is lower at CD than at CE. This could only happen if the price of labor rises, since the slope of isocost lines represents the relative price of labor and capital. Therefore, Choice C is the correct answer.

Refer to the Information Provided in Figure 7