Because of strong demand for its A-320 aircraft, Airbus increased the monthly production rate from 40 aircraft in 2021 to 45 in 2023. Airbus invested in new highly automated production machines (K) enabling the increased production with no increase in labor. The isocost/isoquant diagram below shows the capital and labor employed at the production rate of 40 aircraft per month.

Complete the isocost/isoquant diagram below; insert appropriate isocost curve with the increased equipment (K) and the same labor force. Insert new dotted lines showing the levels of K and L at Q = 45

Will labor be more or less productive with the increase in K? Explain.

Will the new production level increase labor's ability to negotiate a higher wage?

K Q=45 Q=40 Ko - - - - Lo Lo