Question

An isocost line shows:

A. all the possible output levels that can be produced at a given total cost.
B. all the input combinations that produce the same total output.
C. all the input combinations that can be purchased at a given total cost.
D. the total cost of producing each possible level of output.

Answer 1

C) all the input combinations that can be purchased at a given total cost.

Step-by-step explanation:

The isocost formula is C =wL + rK

where:

• C = Total Cost
• w = wage rate of labor (L)
• r = cost of capital (K)

The isocost line shows the different combinations of inputs that can be purchased for a given level of total expenditure (C) at given input prices (w, r).

The total costs should be minimized at the point where the isocost line intersects with the isoquant line (shows all possible input combinations capable of producing a given level of output).