Suppose the cost of capital changes and the firm decides to produce a higher level of output.

The isocost line changes so that the same firm achieves a new equilibrium at Point B in Figure 1.

A.What is the new Price of Capital based on the isocost line that intersects Point B?

B.What is the new total cost of producing at Point B?Has the total cost increased, decreased or stayed the same

compared to Point A?

C.At point B, how many Hours of Labor does the firm need to employ?

D.What is the new value of the MRTS at Point B? How did the change in the price of Capital affect the MRTS?

E.Explain why the number of hours of labor decreased if the price of labor stayed the same at $15 per hour.

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