2. [35 points] Consider a firm that uses only labour and capital as inputs. The firm is a profit-maximizing monopolist in the output market and buys labour in a perfectly competitive market for $500 per week. The firm rents 20 units of machinery at $50 per week. The firm's output depends on the number of workers hired. The table shows the firm's short-run production function and the prices it can sell its output for: workers Output per week MPL TR MRPL W TC PROFITS O 1,000 5,000 3,500 2,500 14,000 9,000 500 1,500 12,500 5,900 2,400 17,700 3,700 500 2,000 15,700 7,700 1,800 2 15,400 -2,300 500 2,500 12,900 8,700 1,000 8,700 -6,700 500 3,000 5,700 9.600 900 0.5 4.800 -3,900 500 3,500 1,300 workers Output per week MPL P TR MRPL W TC PROFITS 1,000 500 500,000 3,500 2,500 400 1,400,000 900,000 500 1,500 1,398,500 5,900 2,400 300 1,770,000 370,000 500 2,000 1,768,000 OWN - 7,700 1,800 200 1,540,000 -230,000 500 2,500 1,537,500 8,700 1,000 100 870,000 -670,000 500 3,000 867,000 9,600 900 50 480,000 -390,000 500 3,500 476,500 a) [10 points] How many workers will the firm hire? b) [10 points] Use a diagram to illustrate the cost-minimizing, long-run input combination used by the firm? Label the isoquant and intercepts. c) [5 points] Calculate the firm's profit/loss when it hires the number of workers in (a) d) [10 points] Suppose the wage rate for workers increases to $3,500 per week in the long-run. a. [5 points] Show on a diagram the new optimal input combination. Label your axes, isoquants, and intercepts. b. [5 points] Explain the resulting income and substitution effects