Assume a firm is trying to produce q0 units of output at the lowest total cost. The wage decreases, rotating the isocost line as shown in the below graph. Make the necessary changes to the graph to show the input combination that will now produce q0 at the lowest total cost. Make sure you show the new levels of labor and capital. The diagram represents a standard economic model illustrating the relationship between capital and labor. Here's a detailed breakdown:**Axes**:- The vertical axis represents "Capital (C/r)." - The horizontal axis represents "Labor (L)."**Curves and Lines**:- The curve labeled "q₀" is a production isoquant, showing combinations of capital and labor that yield the same output level.- Point "P" on the isoquant is an optimal combination of capital and labor.- The line tangent to the isoquant at point "P" represents the wage rate and the cost of capital. **Points and Labels**:- "K₁" on the vertical (capital) axis and "L₁" on the horizontal (labor) axis denote the respective inputs for that level of output.- The black dot at point "P" marks the optimal input combination given the respective wage and capital costs.- Two orange lines are drawn from "K₁" to "L₁," representing different wage scenarios. - The line from "Wage is w₀" to "P" indicates one wage scenario. - The line from "Wage is w₁" to "P" indicates an altered wage scenario where the wage is lower or higher, shifting the line.The graph effectively illustrates how changes in wage and capital costs influence the optimal combination of labor and capital inputs for a given level of output. This diagram is crucial for understanding cost minimization in production processes.

There is one isoquant (q0) which shows all the possible combinations of L and K that produces the output We make a new isocost line that is tangent to the isoquant curve producing q0 quantity of output. The new isocost line that we make must have a slope that is equal to the slope of the isocost line after the decline in the wage rate. The new isocost line is tangent to the isoquant curve producing q0 quantity of output at the point B where cost-minimizing input combination is K2 units of capital and L2 units of labor. Thus as the wage rate falls, cost-minimizing the number of capital fall from K1 to K2, and cost-minimizing the number of labor rises from L1 to L2