In the graph below, you can see the isocost curve and the isoquant curve for the firm to produce q=1000 units of output. Note that the vertical axis shows the quantity of capital while the horizontal axis shows the quantity of labor. 200

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Chapter1: Making Economics Decisions
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1. [Appendix Problem from Principles of Economics by Case, Fair, and Oster]
In the graph below, you can see the isocost curve and the
isoquant curve for the firm to produce q=1000 units of output. Note that the
vertical axis shows the quantity of capital while the horizontal axis shows the
quantity of labor.
200
100
q= 1,000
100
200
Units of labor (L)
Suppose that the firm is producing 1000 unit of output at point A using 200 units of
capital and 100 units of labor.
As an outside consultant, what actions would you suggest to management
to improve profits?
What would you recommend if the firm were operating at point B, using
100 units of capital and 200 units of labor? Explain your answer.
i.
ii.
Units of capital (K)
Transcribed Image Text:1. [Appendix Problem from Principles of Economics by Case, Fair, and Oster] In the graph below, you can see the isocost curve and the isoquant curve for the firm to produce q=1000 units of output. Note that the vertical axis shows the quantity of capital while the horizontal axis shows the quantity of labor. 200 100 q= 1,000 100 200 Units of labor (L) Suppose that the firm is producing 1000 unit of output at point A using 200 units of capital and 100 units of labor. As an outside consultant, what actions would you suggest to management to improve profits? What would you recommend if the firm were operating at point B, using 100 units of capital and 200 units of labor? Explain your answer. i. ii. Units of capital (K)
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