(a) Is price of capital rising or falling when the isocost line moves from AB to BC? Please explain. (b) Show the new tangency point between the new isocost line and an isoquant that would  indicate the new equilibrium point for this firm. (c) As a result of the price change of capital, does output fall or rise? Please explain.

ECON MACRO
5th Edition
ISBN:9781337000529
Author:William A. McEachern
Publisher:William A. McEachern
Chapter19: Economic Development
Section: Chapter Questions
Problem 4.6P
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AB is the original (starting) isocost line. BC is the new (changed) isocost line. Q0 is the isoquant. D is the original tangency point (cost minimization point for output Q0).

(a) Is price of capital rising or falling when the isocost line moves from AB to BC? Please explain.

(b) Show the new tangency point between the new isocost line and an isoquant that would  indicate the new equilibrium point for this firm.

(c) As a result of the price change of capital, does output fall or rise? Please explain.

FREE]
Capital
A
D
B
8
Labor
Transcribed Image Text:FREE] Capital A D B 8 Labor
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