Carla H is considering buying a few tablet devices for her bakery so customers can place orders for her signature cupcakes on their own, straight from the counter.

Reason: She fears the $7.25 an hour that she currently pays her 10 customer service employees, could rise, perhaps to $9 an hour under a pledge by President Obama earlier this month.

Key Facts for Questions

Ms. H believes that the customer-ordering process has to be automated, in order to remain profitable with self-serving tablets

The combined cost of two tablets, plus a customized application for displaying products with descriptions and processing orders range from $5,000 - $15,000 to implement

Some businesses see a promise in selling technologies to small businesses to help do-away with low-wage workers

A $22,000 six-foot-tall robot with flexible arms, a face screen, and rolling pedestals replaces the low-wage workers at small manufacturing firms that can't afford traditionally automated robots that require someone to program it

Questions

What must the firm do in order to produce the same level of output at the new set of input prices? (Assume that only the price of labor increased, the price of robots remained the same). Hint: experiment with your is ocost lines, keeping in mind what the slope is equal to).

What happens to the cost-minimizing amounts of labor and robots after the wage increase? Draw graphically. You should have your original tangency and your new tangency on the desired isoquant.

What has happened to Total Cost?

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