Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

10. The Costs of Production

Isocost Lines

Microeconomics

10. The Costs of Production

Isocost Lines

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Multiple Choice

An increase in a company's budget will:

Increase the slope of the isocost line

Decrease the slope of the isocost line

Shift the isocost line inward

Shift the isocost line outward

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Verified step by step guidance

Understand the concept of an isocost line: An isocost line represents all combinations of inputs (usually labor and capital) that a firm can purchase for a given total cost. The slope of the isocost line is determined by the ratio of the prices of the two inputs.

Identify the effect of a budget increase: When a company's budget increases, it means the firm has more money to spend on inputs. This does not change the prices of the inputs, so the slope of the isocost line remains the same.

Analyze the shift of the isocost line: With a higher budget, the firm can afford more of both inputs, which means the isocost line will shift outward, away from the origin, indicating a higher level of possible input combinations.

Consider the implications of the shift: The outward shift of the isocost line allows the firm to reach higher isoquants, which represent higher levels of output, assuming the firm optimizes its input combination.

Conclude the analysis: The correct answer is that an increase in a company's budget will shift the isocost line outward, as the firm can now afford more of both inputs without changing the relative prices of those inputs.