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Question

If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line


  1. to become steeper and the optimal quantity of labor will decrease

  2. to become steeper and the optimal quantity of labor will increase

  3. to become flatter and the optimal quantity of labor will decrease

  4. to become flatter and the optimal quantity of labor will increase


Solution

The correct option is A

to become steeper and the optimal quantity of labor will decrease


If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line to become steeper and the optimal quantity of labor will decrease.

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