Assume That Capital Is Measured Along the Vertical Axis, and Labor

question 72

Multiple Choice

Assume that capital is measured along the vertical axis, and labor is measured along the horizontal axis. The firm has an initial isocost line called $T C _ { 1 }$ . Now suppose that the price of labor trebles and the price of capital also trebles. Which statement accurately describes the movement of the isocost line from $T C _ { 1 }$ to $T C _ { 2 }$ ?

• A)The slope of the isocost line becomes flatter.
• B)The slope of the isocost line becomes steeper.
• C)The slope of the isocost line is unchanged.
• D)We cannot determine whether the slope becomes flatter or steeper.

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Definitions:

Unit Variable Cost

The variable cost incurred to produce one unit of product, including direct materials, direct labor, and variable manufacturing overhead.

Monthly Sales

The total revenue generated from the sales of products or services within a month.

Net Operating Income

A measure of a company's profitability from its regular business operations, excluding income and expenses from unusual or non-operational activities.

Break-even Point

The level of production or sales at which total costs equal total revenues, resulting in no profit or loss.