Question 9
Theory of ProductionA textile firm operates a plant in the North (where capital is expensive relative to labour) as well as a plant in the South (where labour is expensive relative to capital). In the diagram above the Southern plant will minimize cost by combining labour and capital in the amounts indicated by
- A.P
- B.Q
- C.X
- D.Y
Show the answer and explanation
Answer: C (X)
Explanation
Where labour is relatively dear, the cost line is steep and touches the isoquant at a point using more capital and less labour. That is point X.