Given the above graph,as you move from point A to point B,
A)output is unchanged.
B)cost is unchanged.
C)the rate at which the firm can substitute labor for capital while holding output constant decreases.
D)both a and b
E)both a and c

Question

Given the above graph,as you move from point A to point B,
A)output is unchanged. 
B)cost is unchanged. 
C)the rate at which the firm can substitute labor for capital while holding output constant decreases. 
D)both a and b 
E)both a and c

Quizplus · Accepted Answer

Moving from point A to point B, the firm is moving along the isoquant curve, meaning that output is held constant. However, the slope of the isoquant curve (the rate at which the firm can substitute labor for capital while holding output constant) is decreasing. This means that the firm is becoming less and less efficient in substituting labor for capital, which is represented by the decreasing marginal rate of technical substitution (MRTS). Therefore, both statement a (output is unchanged) and statement c (the rate at which the firm can substitute labor for capital while holding output constant decreases) are true. The cost, however, may or may not be unchanged, depending on the prices of the inputs.

Given the Above Graph,as You Move from Point a to Point