A firm's isocost line identifies the

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BlackTom AI · Accepted Answer

The question asks about what a firm's isocost line identifies. Since no multiple-choice options are provided, I will focus on defining the concept and evaluating the provided answer.

The isocost line represents all combinations of two inputs (commonly capital K and labor L) that a firm can purchase for a given total cost, given input prices. In mathematical terms, if w is the price of labor and r is the price of capital, and C is the total cost, then the isocost line is wL + rK = C. Each point on this line corresponds to a feasible bundle of inputs that exactly exhausts the budget C. Points inside the line would cost less than C, and points outside would cost more than C.

Evaluating the provided option: 'input combinations that can be purchased for a given cost.' This statement accurately captures the essence of an isocost line. It emphasizes that the line shows all input bundles affordable at a fixed total expenditure, which is the correct interpretation of an isocost.

If there were alternative options, we would contrast them as follows: an option suggesting the isocost line represents output levels would be incorrect, as that role belongs to the production function and isocost/constrained optimization analysis rather than cost possibility sets. An option claiming the isocost line shows the cheapest way to produce a given output would be mixing concepts with the idea of an isoprofit/production frontier; the isocost does not itself show cheapest production, but combinations affordable at a given cost.

In summary, the given statement aligns with the standard definition of an isocost line: it is the set of input combinations that can be purchased for a given total cost, given input prices.

ECON 4001.01 SP2025 (19496) Week 6 quiz

A firm's isocost line identifies the

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