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6. Shift in cost curves due to a relative change in input price Suppose a firm is initially producing 1,000 units of output at point
6. Shift in cost curves due to a relative change in input price Suppose a firm is initially producing 1,000 units of output at point A, where the green line labeled TC; lies tangent to the purple line labeled g = 1,000. Initially, the wage (w) is $30 and the rental rate of capital (r) is $10. @ 10 ]' 9 q=1,000 CAPITAL (Machines per week) 0 1 2 3 4 5 6 7 8 9 10 LABOR (Workers per week) Suppose that the wage changes, shifting the firm's line of total cost curve from TC} to TC> (holding all else constant). The new wage must be & . The new least-cost way to produce 1,000 units of output is given by the input bundle at point + . Complete the following table by computing the total cost of producing 1,000 units using bundle A at the initial wage rate and at the new wage rate. Then, compute the total cost of producing 1,000 units using the efficient bundle given the new wage rate. Initial Wage Rate New Wage Rate Total cost of producing using bundle A: Total cost of producing using new bundle: True or False: As a result of the decrease in wage, the firm's average and marginal cost curves will change only if the firm substitutes toward the now cheaper labor at each level of output. True False
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