How does a change in the price of one input change the firm's long-run expansion path? if the price of an input changes, then the a. slope of the isocost lines will change, and the firm will substitute away from the relatively more expensive input, pivoting the expansion path toward the axis of the relatively cheaper input. b. isoquants will shift in a parallel fashion, and the firm will substitute away from the relatively more expensive input, pivoting the expansion path toward the axis of the relatively more expensive input. c. isocost lines will shift in a parallel fashion, and the firm will substitute away from both inputs, shifting the expansion path in a parallel fashion. d. slope of the isoquants will change, and the firm will substitute toward the relatively cheaper input, pivoting the expansion path toward the axis of the relatively cheaper input.

Fanning company is considering the addition of a new product to its cosmetics line. the company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. relevant information and budgeted annual income statements for each of the products follow. skin cream bath oil color gel budgeted sales in units (a) 110,000 190,000 70,000 expected sales price (b) $8 $4 $11 variable costs per unit (c) $2 $2 $7 income statements sales revenue (a × b) $880,000 $760,000 $770,000 variable costs (a × c) (220,000) (380,000) (490,000) contribution margin 660,000 380,000 280,000 fixed costs (432,000) (240,000) (76,000) net income $228,000 $140,000 $204,000 required: (a) determine the margin of safety as a percentage for each product. (b) prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. (c) for each product, determine the percentage change in net income that results from the 20 percent increase in sales. (d) assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? (e) assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?