Question

5.If an isocost line crosses the isoquant twice, a cost minimizing firm will ____

A) use a different isocost line to select the bundle of inputs.

B) use the input bundle associated with the intersection on the higher point of the isoquant.

C) use the input bundle associated with the intersection on the lower point of the isoquant

.D) Both B and C.

6. Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. The minimum costs of producing 10 units of outputis ____.

Answer 1

Question 5

A cost minimizing firm selects that bundle of inputs corresponding to which the given isoquant is tangent to the isocost line.

So, if an isocost line is crossing the given isoquant twice then this indicates that neither at the highest point of intersection nor at the lower point of intersection that the given isoquant will be tangent to the stated isocost line. Thus, there is no cost minimizing bundle with respect to this isocost line.

In such scenario, the cost minimizing firm will use a different isocost line to select the bundle of inputs.

Hence, the correct answer is the option (A).