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isocost and isoquant example

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1. Suggest the new leadership in Congress decides to repeal some of the tax breaks granted to large businesses during the past several years. If investment tax credits granted earlier are either repealed or eliminated, what impact will the repeal have on the exporting of jobs to foreign countries? Explain using isoquant/isocost theory?

2. Suppose you are reviewing an isocost graph. The axis on the graph show capital units on the vertical axis, and labor units on the horizontal axis. If someone tells you the y intercept for an isocost line representing expenditures of 1 million dollars occurs at 4 units, and the x intercept for the same isocost line is 5 units, what does that mean?

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Solution Summary

It shows what is likely to happen if the government repeals tax credits on investment and it also shows how to derive prices given y-intercepts and x-intercepts of the isocost line.

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