Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 7.A, Problem 4P
To determine

Isoquant/isocost diagram.

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Using the information from the isoquant/isocost diagram to the right and assuming that PL = P = $2, complete the table below. (Enter your responses as integers.) Output Units 100 200 300 Total Cost of Output $100 $ $300 Units of Labor Demanded 25 50 Units of Capital Demanded 4 50 75 Units of capital (K) 200 175- 150- 125- 8100- 75- 50- 25+ 0+ 0 25 50 9=100 9 200 100 125 150 q=300 75 Units of labor (L) 175 200 Q Q
Isoquant curves and isocost curves are tools that can explain how a firm might best respond to changes in the production environment.  Present an example of an isocost curve where labor and capital are the two inputs, and explain what it is using language someone not trained in economics could understand.  Present an example of an isoquant in the same diagram you used for your isocost curve, and draw the isoquant so it cuts the isocost curve twice. Explain what an isoquant is using language someone not trained in economics could understand.  Label the two points A and B, where the isocost and isoquant curves intersect.  Present a logical argument that explains why the firm should operate neither at point A nor point B, and present a point that would be optimal by drawing a new isoquant curve in the diagram.  Add a second isocost curve to your diagram such that the firm is spending more money on inputs.  Add a third isoquant to your diagram to show a firm that would become more capital…
WickCo makes decorative candles, and its production function is given as Q = K+ L, where K is the units of capital, and L is the units of labor used in the production process. a. In the diagram below, draw the isoquant for WickCo. for output level Q = 10. The diagram below is a 10x10 grid b. Suppose the wage rate is $50 per unit of labor and the rental rate of capital is $55 per unit. In the diagram given in part (a), show the cost minimizing input combination for Q = 10 and draw the associated isocost line. What is the total cost of production at the cost minimizing input combination?
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