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Example Calculation of Isocost Slope (w=£10, p=£5)
The slope of an isocost line is determined by the relative price of the inputs. For a wage of £10 and a capital price of £5, the slope is calculated as -(10/5) = -2. This indicates that to maintain a constant total cost, such as £40, an additional £10 spent on one worker must be offset by a £10 reduction in capital, which corresponds to 2 units of capital.
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Example Calculation of Isocost Slope (w=£10, p=£5)
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The £40 Isocost Line (FG)
A firm can produce a specific quantity of output using different combinations of labor and coal. The wage for one worker is £10, and the price for one ton of coal is £5. Given the following production options, which one represents the lowest total cost for the firm?
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A factory manager is considering different ways to produce a certain amount of goods. The wage for a worker is £10 per day, and the price of coal is £5 per ton. To keep the total daily production cost the same, if the manager decides to hire one fewer worker, they can instead use an additional ______ tons of coal.
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Impact of Relative Input Price Changes on Technology Choice
A firm is evaluating different production technologies to produce a set amount of output. The daily wage for a worker is £10, and the price per ton of coal is £5. Match each technology, described by its required inputs, to its correct total daily cost.
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Technology A as the Least-Cost Choice for w=£10 and p=£5
Learn After
What does the slope of the isocost line represent in economic terms?
If the slope of the isocost line is -2, what does this imply about the trade-off between labour and capital?
How can the slope of the isocost line be interpreted if the price of labour is £10 and the price of capital is £5?
Given that the slope of the isocost line is -2, which of the following statements is true?
Technology Choice and Changing Input Prices
A manufacturing firm pays a wage rate of £20 per hour for labor and can purchase a unit of capital for £4. The slope of this firm's isocost line is ____.
A firm's isocost line is based on a wage rate of £10 per hour and a rental price of capital of £5 per unit. If the wage rate increases to £15 per hour while the price of capital remains unchanged, how does the slope of the isocost line change?
A firm faces a price for capital of £10 per unit. If the slope of its isocost line is -4, what must be the hourly wage rate for labor?
Evaluating a Cost-Minimization Strategy
A textile factory pays its workers a wage of £10 per hour and rents looms (a form of capital) for £5 per hour. To maintain the same total production cost, the factory can replace one hour of labor with one loom.