Suppose GE Produces 1 Million Light Bulbs Per Month While

question 7

Essay

Suppose GE produces 1 million light bulbs per month While labor is variable both in the short run and the long run, capital is fixed in the short run.Labor is sold at a rate w and capital is rented at a rate r.
a.On a graph with labor on the horizontal axis, illustrate the current isocost and isoquant for GE.Carefully label the slope of the isocost.
b.For the rest of the problem, suppose a new tax on capital is implemented but GE intends to continue to produce 1 million light bulbs per year.What will GE do differently in the short run and the long run? Explain using your graph from part (a).
c.Using your answer to part (b), explain what happens to the short run cost curve in the short run.What happens to this short run curve in the long run? Do costs rise more or less in the long run than they do in the short run?
d.Do total costs rise more or less in the long run than total expenditures do in the short run? Explain.

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