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QUESTION 6 (10 MARKS) Imagine Technotronics Inc., a hypothetical manufacturing firm known for its high-quality electronic components. The firm's production requires two essential inputs: specialized
QUESTION 6 (10 MARKS) Imagine "Technotronics Inc.," a hypothetical manufacturing firm known for its high-quality electronic components. The firm's production requires two essential inputs: specialized labour and cutting-edge machinery (capital). These inputs' costs are indicated by their market prices, denoted as w for labour and r for capital. Initially, Technotronics Inc. operates in a market with labour costs of w = $8 per hour and machinery costs of r = $5 per hour. However, the market experiences a shift, and the prices drop to w = $5 per hour for labour and r = $3 per hour for machinery. a) (3 marks) Given the substitution effect, how will Technotronics Inc. likely adjust its employment of labour and capital? b) (3 marks) What impact will the scale effect have on the firm's employment of labour and machinery? ) (4 marks) Can we definitively determine if Technotronics Inc. will increase or decrease its use of labour or capital
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