Question
1)Suppose that the price of capital is $20, and the price of labor is $10 and assume that to produce 100 units of output, the
1)Suppose that the price of capital is $20, and the price of labor is $10 and assume that to produce 100 units of output, the firm can use either 5 units of K and 4 units of L (technology A) or 2 units of K and 5 units of L (technology B).
a) What is the cost minimizing technology? Draw the isocost curve for this cost (call it CD line) and show the tangency point with the isoquant clearly indicating the technology (A or B). What is the slope of the isocost CD?
b) Suppose that the price of labor rises to $20 while price of capital stays at $20, how will the isocost shift (holding the total cost at the same level as in (a))- call this EF line? What must be the new level of minimum cost level to produce 100 units? Draw its line and call it GH.
PLEASE DON'T USE CHATGPT AND DRAW THE GRAPHS
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