An isocost curve shows the different combinations of two goods that can be purchased with a given budget B. Blast furnaces can be heated with either gas (x) or coal (y). Given px = 100, py = 400, and B = 8000,

(a) draw the isocost curve. Always starting from the original data, draw a new isocost curve

(b) if B increases by 50 percent,

(c) if px doubles, and

(d) if py decreases by 37.5 percent.

The graph appears as a dashed line in Fig. 2-21(c).

Transcribed Image Text:

(a) With px = 100, Py = 400, and B = 8000, the standard form of the equation for the isocost curve is 100x +400y=8000 y=-0.25x+20 The graph is the solid line in Fig. 2-21(a). (b) With a 50 percent increase in expenditures, the new budget is 8000+0.5(8000) = 12,000. The new equation is 100x +400y12,000 y = -0.25.x + 30 The graph is the dashed line in Fig. 2-21(a). (c) If px doubles, the new price is 200, and the new equation is 200x +400y= 8000 y = -0.5x+20 The graph is the dashed line in Fig. 2-21(b). (d) If py drops by 37.5 percent, the new py is 400-0.375(400) = 250. 100x +250y= 8000 y=-0.4x+32