Pottsville Dress Corporation which was designed to produce 50 dresses using 120 capital and 180 labour. The price of capital (K) is $10 and the price of labour is $10. Suppose the price of labour increases to $30. In the long run the company has two choices, reduce output or maintain output. Illustrate the long run adjustment if the budget is maintained. Next illustrate the long run adjustment if the output is maintained at 50 units. For both options what is the new cost of producing a dress compared to the original cost? Capital

Original cost of a dress

New cost of a dress if continue with your original budget

If the firm wishes to maintain its output, what will be the new cost of a dress in the short run and in the long run?

1. New cost of a dress, after the price increase of labour, if there is not enough time to

change K, that is in the short-run

1. New cost of a dress, after the price increase of labour, if there is enough time to change all inputs (long-run)