The Red Racer Company and the Blue Bomber Company are each capable of minimizing cost and producing 4,000 bicycles per month. Red Racer's factory is located in an area where the cost of labor is significantly less and the cost of capital is significantly more than the costs of labor and capital for Blue Bomber. Assume that each company has access to the same technology to produce bicycles and draw an isoquant/isocost diagram to illustrate why the cost-minimizing combinations of inputs for these companies are different. 1.) Using the line drawing tool, draw and label the isocost line for Red Racer's factory. 2.) Using the point drawing tool, plot and label the equilibrium value for Red Racer's factory. 3.) Using the line drawing tool, draw and label the isocost line for Blue Bomber's factory. 4.) Using the point drawing tool, plot and label the equilibrium value for Blue Bomber's factory. Note: Carefully follow the instructions above and only draw the required objects. Units of capital (K) 9-4,000 Units of labor (L)

The Red Racer Company and the Blue Bomber Company are each capable of minimizing cost and producing 4,000 bicycles per month. Red Racer's factory is located in an area where the cost of labor is significantly less and the cost of capital is significantly more than the costs of labor and capital for Blue Bomber. Assume that each company has access to the same technology to produce bicycles and draw an isoquant/isocost diagram to illustrate why the cost-minimizing combinations of inputs for these companies are different. 1.) Using the line drawing tool, draw and label the isocost line for Red Racer's factory. 2.) Using the point drawing tool, plot and label the equilibrium value for Red Racer's factory. 3.) Using the line drawing tool, draw and label the isocost line for Blue Bomber's factory. 4.) Using the point drawing tool, plot and label the equilibrium value for Blue Bomber's factory. Note: Carefully follow the instructions above and only draw the required objects. Units of capital (K) 9-4,000 Units of labor (L)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

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.

Question

The Red Racer Company and the Blue Bomber Company are each capable of
minimizing cost and producing 4,000 bicycles per month. Red Racer's factory is
located in an area where the cost of labor is significantly less and the cost of
capital is significantly more than the costs of labor and capital for Blue Bomber.
Assume that each company has access to the same technology to produce
bicycles and draw an isoquant/isocost diagram to illustrate why
the cost-minimizing combinations of inputs for these companies are different.
1.) Using the line drawing tool, draw and label the isocost line for Red Racer's
factory.
2.) Using the point drawing tool, plot and label the equilibrium value for
Red Racer's factory.
3.) Using the line drawing tool, draw and label the isocost line for Blue Bomber's
factory.
4.) Using the point drawing tool, plot and label the equilibrium value for
Blue Bomber's factory.
Note: Carefully follow the instructions above and only draw the required objects.
Units of capital (K)
9 = 4,000
Units of labor (L)

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