Answered: Figure 1 (a) What assumption does…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter14: Labor Markets And Income

Section: Chapter Questions

Problem 23RQ: What is the marginal cost of labor?

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Figure 1 below.

Figure 1

(a)

What assumption does Figure 1 make about the nature of the production function of a firm and what does point A represent? Explain your answer.

(b)

Reproduce Figure 1 provided in the question. By making appropriate inferences from it, work further to show a new isocost line for the cost level of $1000 on the same figure, if wages fall by 10% while the rental rate on capital increases by 20%. Explain your work carefully.

(c)

What input combination will the firm use to produce output level of 100, if wages fall by 10% while the rental rate on capital increases by 20%? Explain your answer.

Carefully observe Figure 1 below.
K (Capital)
25
10
A
12
C=$1000
20
Q=100
Figure 1
→L (Labour)

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