Suppose the price of labor used by a cost-minimizing firm decreases. The firm responds to the price change by changing its demands for certain inputs, but keeps its output constant. What happens to the firm’s use of labor? What happens to the firm’s production costs? Graphically show the new optimal bundle and associated isocost curve on the graph below.
Suppose the price of labor used by a cost-minimizing firm decreases. The firm responds to the price change by changing its demands for certain inputs, but keeps its output constant. What happens to the firm’s use of labor? What happens to the firm’s production costs? Graphically show the new optimal bundle and associated isocost curve on the graph below.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.4P
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Suppose the price of labor used by a cost-minimizing firm decreases. The firm responds to the price change by changing its demands for certain inputs, but keeps its output constant. What happens to the firm’s use of labor? What happens to the firm’s production costs? Graphically show the new optimal bundle and associated isocost curve on the graph below.
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