Suppose the Machine rental rate decreases from $20 per hour to $10 per hour, while the rental rate of labour remains at $30 per hour. Show using a labelled Isoquant-Isocost diagram what happens (before and after) to the minimum-cost combination for producing shoes. Does the production process become more or less capital intensive (i.e., higher or lower K-L ratio)? Will the capital intensity (K-L ratio) of production change if, in addition, now the rental rate of labour decreases to $15 per hour?
Suppose the Machine rental rate decreases from $20 per hour to $10 per hour, while the rental rate of labour remains at $30 per hour. Show using a labelled Isoquant-Isocost diagram what happens (before and after) to the minimum-cost combination for producing shoes. Does the production process become more or less capital intensive (i.e., higher or lower K-L ratio)? Will the capital intensity (K-L ratio) of production change if, in addition, now the rental rate of labour decreases to $15 per hour?
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter7: Production And Cost In The Firm
Section: Chapter Questions
Problem 18PAE
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Suppose the Machine rental rate decreases from $20 per hour to $10 per hour, while the rental rate of labour remains at $30 per hour.
Show using a labelled Isoquant-Isocost diagram what happens (before and after) to the minimum-cost combination for producing shoes.
Does the production process become more or less capital intensive (i.e., higher or lower K-L ratio)?
Will the capital intensity (K-L ratio) of production change if, in addition, now the rental rate of labour decreases to $15 per hour?
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