Question
T MACROECO Consider the same scenario as the example in class. However while the price of capital (r) remains at $10 per unit, the price
T MACROECO
Consider the same scenario as the example in class. However while the price of capital (r) remains at $10 per unit, the price of labor increases from $20 to $30. Here are the original Production Function and Isocost Curve equations: Q(K,L) = L0.4K0.6 = 100 Isocost: C = 20L + 10K a. What is the new Isocost Curve Equation with the price change? b. Calculate the new cost-minimizing combination of L and K to produce 100 units of output. c. What is the cost associated with this bundle? d. Based on the graph in slide 52 & 54, roughly graph the new isocost line and indicate the new cost-minimizing bundle. What happened?
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