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See picture for question: 1) Consider a fum with the long-run technology Q=F(K,N}=KN. Widi K on the vertical axis and L on the horizontal, draw
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1") Consider a fum with the long-run technology Q=F(K,N}=KN. Widi K on the vertical axis and L on the horizontal, draw some isoquants for this rm. Lahel the Q=l [l isoquant. For input prices w=3, i=2, draw some isocost lines for the fum. By equating the MRTS and the iso-cost line slope, fine the optimal input mint in the long- run if Q= ll]. What happens to this input mix if w rises from 3 to 4, with r=2 unchanged? Assume we remain on the Q=l ll isoquant (so you are studying the substitution effect along). If we allow the rm to alter its scale of operations1 which direction will long-rim Lahour Demand change, relative to your answer in e, in response to the rise in w? ExplainStep by Step Solution
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