We Are Looking at a Graph with Capital on the Vertical

question 162

Multiple Choice

We are looking at a graph with capital on the vertical axis and labor on the horizontal axis. If the price of labor increases, then the

• A)isocost line becomes steeper.
• B)isoquants become steeper.
• C)isoquants become flatter.
• D)isocost line becomes flatter.
• E)isocost line and isoquants become flatter.

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Definitions:

Hicksian Substitution Effect

Alternative to the Slutsky equation for decomposing price changes without recourse to indifference curves.

Indifference Curves

A graph showing different bundles of goods between which a consumer is indifferent.

Lagrangian

Function to be maximized or minimized, plus a variable (the Lagrange multiplier) multiplied by the constraint.

Lagrange Multiplier

A technique used in constrained optimization problems to find the maximum or minimum of a function subject to constraints.