Question

The slope of an isocost line ________ and equals the negative of ________. Select one: a. is constant; the ratio of the marginal products b. decreases as we move down the line; the ratio of the marginal products c. is constant; the ratio of input prices d. increases as we move down the line; the ratio of input prices

Answer 1

Answer: c. is constant; the ratio of input prices

Explanation: The isocost line is defined as curve that represents a combination of various inputs (factors of production: labor and capital) that cost the same. The slope of the isocost line is equal to the ratio of price of factor-inputs and as such is constant and equals the negative of the ratio of input prices. It is therefore, an essential tool for determining the combination of factor-inputs a firm will choose for its production process. If two isocost lines are parallel, then both have the same input price ratio but the one further from the origin represents a higher level of total cost.