Question 3.3 must be answered using Q&A 6.3 has illustration

nt 3.3 Suppose that the government subsidizes the cost of workers by paying for 25% of the wage (the rate offered by the U.S. government in the late 1970s under the New Jobs Tax Credit program). What effect will this subsidy have on the firm's choice of labor and capital to produce a given level of output? What happens if both capital and labor are subsidized at 25%? (Hint: See Q&A 6.32.)plus.pearson.com Week 4 Assignment (19 567 non lus) - harding218@yahoo. Free Grammar Checker (Online E Answer 1. Determine whether the change in factor prices affects the slopes of the isoquant or the isocost lines. The change in input prices does not affect the isoquant, which depends only on technology (the production function). Moreover, cutting both the input prices in half does not affect the slope of the isocost lines. The original slope was -w/r, and the new slope is -(w/2)/(r/2) = -w/r. 2. Using a rule for cost minimization, determine whether the firm changes its input mix. A firm minimizes its cost by producing where its isoquant is tangent to the lowest possible isocost line. That is, the firm produces where the slope of its isoquant, MRTS, equals the slope of its isocost line, -w/r. Because the slopes of the isoquant and the isocost lines are unchanged after input prices are cut in half, the firm continues to produce using the same amount of labor, L, and capital, K, as originally 3. Calculate the original cost and the new cost and compare them. The firm's original cost of producing q units of output was wl + rk = C. Its new cost of producing the same amount of output is (w/2)L + (r/2)K = C/2. Thus, its cost of producing q falls by half when the input prices are halved. The isocost lines have the same slope as before, but the cost associated with each isocost line is halved. MacBook Air 0 2plus.pearson.com Week 4 Assignment (19 567 non lus) - harding218@yahoo. Free Grammar Checker (Online Editor) Q&A 6.3 If a firm manufactures at home, it faces input prices for labor and capital of w and r and produces q units of output using L units of labor and K units of capital. Abroad, the wage and cost of capital are both half as much as at home. If the firm manufactures abroad, will it change the amount of labor and capital it uses to produce q? What happens to its cost of producing quantity q? Answer 1. Determine whether the change in factor prices affects the slopes of the isoquant or the isocost lines. The change in input prices does not affect the isoquant, which depends only on technology (the production function). Moreover, cutting both the input prices in half does not affect the slope of the isocost lines. The original slope was -w/r, and the new slope is -(w/2)/(r/2) = -wir. 2. Using a rule for cost minimization, determine whether the firm changes its input mix. A firm minimizes its cost by producing where its isoquant is tangent to the lowest possible isocost line. That is, the firm produces where the slope of its isoquant, MRTS, equals the slope of its isocost line, -w/r. Because the slopes of the isoquant and the isocost lines are unchanged after input prices are cut in half, the firm continues to produce using the same amount of labor, L, and capital, K, as originally. MacBook Air EA *