The Slope of the Isocost Line Tells the Firm How

question 82

Multiple Choice

The slope of the isocost line tells the firm how much

• A)capital must be reduced to keep total cost constant when hiring one more unit of labor.
• B)capital must be increased to keep total cost constant when hiring one more unit of labor.
• C)more expensive a unit of capital costs relative to a unit of labor.
• D)the isocost curve will shift outward if the firm wishes to produce more.

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Definitions:

Spillover Cost

A cost incurred by someone who did not choose to incur that cost.

Allocative Efficiency

A state of the market where resources are allocated in a way that maximizes the net benefit to society.

Productive Efficiency

Productive efficiency occurs when an economy is operating at its maximum capacity, producing goods and services at the lowest possible cost per unit.

Marginal-Cost-Marginal-Benefit Rule

The marginal-cost-marginal-benefit rule states that optimal decision-making occurs when the marginal cost of an action equals its marginal benefit, ensuring efficient resource allocation.