In 2003, Circuit City Stores, Inc., replaced skilled sales representatives who earned up to $54,000 per year with relatively unskilled workers who earned $14 to $18 per hour (Carlos Tejada and Gary McWilliams, “New Recipe for Cost Savings:

Replace Highly Paid Workers,” Wall Street Journal, June 11, 2003). Suppose that sales representatives sold one specific Sony high-definition TV model.

Let q represent the number of TVs sold per hour, s the number of skilled sales representatives per hour, and u the number of unskilled representatives per hour. Working eight hours per day, each skilled worker sold six TVs per day, and each unskilled worker sold four. The wage rate of the skilled workers was ws = $26 per hour, and the wage rate of the unskilled workers was wu = $16 per hour.

a. Show the isoquant for q = 4 with both skilled and unskilled sales representatives. Are they substitutes?

b. Draw the isocost line for C = $104 per hour.

c. Using an isocost-isoquant diagram, identify the cost-minimizing number of skilled and unskilled reps to sell q = 4 TVs per hour.