The correct answer is: A. Combination of two inputs which yield the same amount of output.
An isocost line is a line that shows all the combinations of two inputs that a firm can purchase with a given budget. The slope of the isocost line is equal to the negative of the ratio of the prices of the two inputs. This means that the firm can only move to a higher isocost line if it is willing to spend more money.
The isocost line is a useful tool for understanding the trade-offs that a firm faces when it is trying to produce a given level of output. The firm can choose to use more of one input and less of the other, but it will only be able to do this if it is willing to spend more money.
Here is a brief explanation of each option:
- B. Combination of two inputs which cost the same amount to a firm. This is not correct because the isocost line shows all the combinations of two inputs that a firm can purchase with a given budget. The cost of the inputs will vary depending on the prices of the inputs.
- C. Combination of two inputs which yield varying amounts of output. This is not correct because the isocost line shows all the combinations of two inputs that yield the same amount of output. The amount of output that a firm can produce will vary depending on the quantities of the inputs that it uses.
- D. Combination of two inputs which cost different amount of outlay to a firm. This is not correct because the isocost line shows all the combinations of two inputs that a firm can purchase with a given budget. The outlay that a firm makes will vary depending on the prices of the inputs.