1. Suppose that the wage rate wo is the only relevant cost of labour (i.e. there are no quasi-fixed costs). Also assume that all workers and jobs are homogeneous. Suppose a firm produces a single output good using two inputs, labour N and capital K. The quantity of output is given by the technology Q = F(K,N). The two inputs are imperfect substitutes (i.e. the isoquants have the standard convex shape). The rental price of capital is ro. The firm is both perfectly competitive in the output and input markets. To stimulate investment, the government now offers a subsidy which effectively brings the price of capital down to r1