Exercise 3 Suppose that Manny, Jack, and Moe can hire workers for w= $10 per hour and can rent capital for r = $5 per hour. a) Write the expression for the firm's total cost as a function of how many workers they hire and how many units of capital they employ. b) Assume that the firm wishes to hold their total cost to exactly $180. Write the equation for the isocost line corresponding to exactly this cost. Then, graph the isocost line. c) What is the vertical intercept of the line you drew? The horizontal intercept? What does each intercept represent? d) What is the slope of the line you drew? What does it represent? e) Suppose that bargaining with the local labor union raises wages. The firm must now pay workers $15 per hour. What happens to the isocost line corresponding to $180 of expenditure? Explain and show your answer complementing your graph from part (b).

Exercise 3 Suppose that Manny, Jack, and Moe can hire workers for w= $10 per hour and can rent capital for r = $5 per hour. a) Write the expression for the firm's total cost as a function of how many workers they hire and how many units of capital they employ. b) Assume that the firm wishes to hold their total cost to exactly $180. Write the equation for the isocost line corresponding to exactly this cost. Then, graph the isocost line. c) What is the vertical intercept of the line you drew? The horizontal intercept? What does each intercept represent? d) What is the slope of the line you drew? What does it represent? e) Suppose that bargaining with the local labor union raises wages. The firm must now pay workers $15 per hour. What happens to the isocost line corresponding to $180 of expenditure? Explain and show your answer complementing your graph from part (b).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Show full answers and steps to part a) b) & c)

**Exercise 3**

Suppose that Manny, Jack, and Moe can hire workers for $ w = \$10 $ per hour and can rent capital for $ r = \$5 $ per hour.

a) Write the expression for the firm’s total cost as a function of how many workers they hire and how many units of capital they employ.

b) Assume that the firm wishes to hold their total cost to exactly \$180. Write the equation for the isocost line corresponding to exactly this cost. Then, graph the isocost line.

c) What is the vertical intercept of the line you drew? The horizontal intercept? What does each intercept represent?

d) What is the slope of the line you drew? What does it represent?

e) Suppose that bargaining with the local labor union raises wages. The firm must now pay workers \$15 per hour. What happens to the isocost line corresponding to \$180 of expenditure? Explain and show your answer complementing your graph from part (b).

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