7.34. This problem will enable you to apply a revealed preference argument to see if a firm is minimizing the total cost of production. The firm produces output with a technology characterized by a diminishing marginal rate of technical substitution of labor for capital. It is required to produce a specified amount of output, which does not change in this problem. When faced with input prices w, and r₁, the firm chooses the basket of inputs at point A on the following graph, and it incurs the total cost on the isocost line IC. When the factor prices change to w, and r, the firm's choice of inputs is at basket B, on isocost line IC. Basket A lies on the intersection of the two isocost lines. Are these choices consistent with cost- minimizing behavior? K IC₁ A B IC2 L

7.34. This problem will enable you to apply a revealed preference argument to see if a firm is minimizing the total cost of production. The firm produces output with a technology characterized by a diminishing marginal rate of technical substitution of labor for capital. It is required to produce a specified amount of output, which does not change in this problem. When faced with input prices w, and r₁, the firm chooses the basket of inputs at point A on the following graph, and it incurs the total cost on the isocost line IC. When the factor prices change to w, and r, the firm's choice of inputs is at basket B, on isocost line IC. Basket A lies on the intersection of the two isocost lines. Are these choices consistent with cost- minimizing behavior? K IC₁ A B IC2 L

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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