Essay
Answer the following questions.
a. Suppose that a firm spends $6,000 producing 80 units of output. The rental rate of capital is $600 per hour and the wage rate is $50 per hour. Graph the firm's isocost line and show the values of the horizontal intercept and vertical intercept.
b. The cost function for a firm is given by C = 25K + 50L. What is the slope of the isocost line for C = $10,000 and C = $18,000?
c. Graphically illustrate the effect of a rise in the price of labor on a firm's isocost line.
d. Why do isocost lines have a constant slope?
Correct Answer:
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"a. The vertical intercept is C/R = 6,00...View Answer
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