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2. Widgets (Q) are produced using worker hours (L) and machine hours (K). At Firm A, labor and capital are xed proportion inputs where each

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2. Widgets (Q) are produced using worker hours (L) and machine hours (K). At Firm A, labor and capital are xed proportion inputs where each widget is produced using exactly 4 worker hours and 2 machine hours. At Firm B, labor and capital are perfect substitute inputs, where each widget can be produced in 120 minutes by a worker or in 30 minutes by a machine. Each rm has a production quota of 100 units of output and to choose labor and capital to minimize its cost. The wage rate is $10/hour, and the rental rate on capital is $30/hour. a. What are the cost-minimizing levels of labor and capital that will enable each firm to meet its production quota? (12 points) b. Now suppose the wage rate decreases to $7/hour. Use an isoquant/isocost framework to graphically depict each rm's response to this decrease in the price of labor, assuming it will once again choose the cost-minimizing levels of labor and capital to meet its production quota. (20 points)

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