Suppose a firm’s technology requires it to hire 100 workers regardless of the wage level. The firm, however, has found that worker productivity is greatly affected by its wage. The historical relationship between the wage level and the firm’s output is given byWage Rate       Units of Output$ 8.00                      65$10.00                     80$11.25                     90$12.00                     97$12.50                    102What wage level should a profit-maximizing firm choose? What happens to the efficiency wage if there is an increase in the demand for the firm’s output?

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Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.