Question 5 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 300 280 20 260 240 5.5 220 50 200 180 160 140 120 100 80 60 40 20 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 Labour 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? (a) 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. $ (b) New cost of a dress, after the price increase of labour, if there is enough time to change all inputs (long-run) $_