used). The $24 isocost line must therefore be tangent to a lower isoquant.
Thus, if production is to be held constant, higher costs must be accepted.
However, because of substitution, it is not necessary to accept costs as
high as those that would accompany an unchanged factor proportion. In
the example, 6 units can be produced for $48 rather than the $60 that
would be required if no change in factor proportions were made.
This analysis leads to the following predictions:
A rise in the price of one factor with all other factor prices held constant will (1) shift the cost
curves of products that use that factor upward and (2) lead to a substitution of factors that are
now relatively cheaper for the factor whose price has risen.Both of these predictions were stated in Chapter 8 ; now they have been
derived formally by the use of isoquants and isocost lines.