Suppose a firm is initially producing 1,000 units of output at point A, where the purple line labeled Total Cost 1 lies tangent to the blue line labeledq=1,000. Initially, the wage (w) is $30 and the rental rate of capital (r) is $10.

Graph (see below).

10 CO q=1,000 CAPITAL (Machines per week) X 4 Total Cost 2 3 2 C Total Cost 1 2 13 5 8 9 10 LABOR (Workers per week)