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 image is a graph illustrating the relationship between capital and labor in an economic context. The x-axis represents labor, while the y-axis represents capital. The graph features several key components:1. **Isoquant Curve (q₀)**: This downward-sloping curve shows different combinations of labor and capital that produce the same level of output (q₀). It indicates the substitutability between capital and labor.2. **Point P**: Located on the isoquant curve, this point indicates an optimal combination of capital (K₁) and labor (L₁) for a certain level of output.3. **Budget Lines**: Two budget lines are depicted, representing different wage levels. The line labeled "Wage is w₀" shows the combinations of labor and capital affordable at a wage rate of w₀. The steeper line labeled "Wage is w₁" indicates a higher wage rate, w₁, and shows the more restricted affordable combinations of labor and capital.4. **Tangency**: The budget line with wage w₀ is tangent to the isoquant at point P, indicating the cost-minimizing combination of labor and capital for producing output level q₀ when wages are at rate w₀.This graph helps in understanding how firms optimize production costs by choosing the right mix of labor and capital, considering wage variations and the technical substitutability between these factors.

Cost minimizing input combination is where isocost line is tangent to isoquant curve.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 slope that is equal to slope of the isocost line after the decline in wage rate. The new isocost line that we made is in red color. The red colored isocost line is tangent to isoquant curve producing q0 quantity of output at point T. Thus cost minimizing input combination is K2 units of capital and L2 units of labor. Thus as wage rate decreases, cost minimizing amount of capital decreases from K1 to K2 and cost minimizing amount of labor increases from L1 to L2