Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4) Suppose the wage (w) is $10 and the price of coal (p) is $20 and a representative firm in the textile industry has two

4) Suppose the wage (w) is $10 and the price of coal (p) is $20 and a representative firm in the textile industry has two types of technologies available with a goal to produce one unit of cloth:

LABOUR (L) COAL (R)

TECHNOLOGY A 8 UNITS 4 UNITS

TECHNOLOGY B 2 UNITS 12 UNITS

a. Calculate the production costs required for the two types of technology. Which technology would a firm choose?

b. Write down the equation of the isocost line for each technology. Make R the subject of the equation.

c. Draw the two isocosts on a diagram. Indicate Technologies A and B and the relative input price ratio.

d. Suppose the wage increases to $15 per unit and the price of coal decreases to $5 per unit. Calculate the new production costs for the two types of technology. Which technology would a firm choose?

e. Write down the equation of the isocost line for each technology after the change in the relative input price ratio. Make R the subject of the equation.

f. Draw the new isocosts on the same diagram and indicate the relative input price ratio.

g. Write down the equation to calculate the innovation rent. How much is the innovation rent?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Crashed How A Decade Of Financial Crises Changed The World

Authors: Adam Tooze

1st Edition

0143110357, 9780143110354

More Books

Students also viewed these Economics questions

Question

How often do you meet with your graduate students?

Answered: 1 week ago