A firm with production function q = K1/4L1/4pays $2.00 per unit for labour, $0.50 per unit for capital, has fixed costs of $50 and sells output at a price of $40. The price of labour falls to $0.50 per unit. a.Provide a labelled İsoquant Diagram that decomposesthe input price change into substitution effect and output effect.
A firm with production function q = K1/4L1/4pays $2.00 per unit for labour, $0.50 per unit for capital, has fixed costs of $50 and sells output at a price of $40. The price of labour falls to $0.50 per unit. a.Provide a labelled İsoquant Diagram that decomposesthe input price change into substitution effect and output effect.
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.4P
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