2. Draw a simple isoquant/isocost diagram depicting a firm's optimal choice of labor and capital. Then,...
2. Draw a simple isoquant/isocost diagram depicting a firm's optimal choice of labor and capital. Then, on the same diagram, show how a firm adjusts to an increase in the wage paid to labor (holding the rate paid to capital constant).
Homework Answers
The firms's optimal choice of labor and capital occurs at the point where the slope of the iso cost line is equal to the slope of iso quant line. In the diagram above, AB represents the iso cost line of the producer and Q1 is the quantity of output produced. The optimum amount of labor and capital employed to produce Q1 units of output is equal to L* and K* because at the optimum point E1, the slope of iso cost line AB is equal to the slope of isoquant Q1.
With the increase in the price of labor, the iso cost line will pivot inwards to AB' and the new optimum occurs at point E2 where the amount of labor employed has decreased to L1* and the amount of capital employed has increased. Thus, increase in the wage rate has led to decline in the level of labor employed.
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2. Draw a simple isoquant/isocost diagram depicting a firm's
optimal choice of labor and capital. Then,...
15 09. 00 points) Suppose that a firm's cost per unit of labor (w) is $30 per day and its cost per a. Draw the isocost line for a total cost per day of s15,000. (Base case) and Draw the What...
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#3 3. The isoquant map for a firm that produces output with labor and capital is shown on the next page. The price...
#3
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15 09. 00 points) Suppose that a firm's cost per unit of labor (w) is $30 per day and its cost per a. Draw the isocost line for a total cost per day of s15,000. (Base case) and Draw the What are the maximum amount of K and L possibly used to produce 100 units? unit of capital (r) is $50 per day isoquant curve when this firm is producing efficiently, assuming output is 100 units b. If the price...
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#3
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