1.
If labor costs $10 per unit and machines rent for $20 apiece, a movement along a given isocost
line might imply a substitution of
two units of machinery for three units of
labor.
one unit of labor for one unit of machinery.
one unit of labor for two units of machinery.
one unit of machinery for two units of labor.
Solution
Answer
As per the concept of ISo cost line a producer firm will able to substitute for
1 unit of Machinery for 2 units of labor as the ratio of substitution is 2:1 , and the price paid for 2
labor is equal for a rent for 1 machine .