Using an Isoquant and Isocost Curves,with Labor on the Horizontal

question 35

Essay

Using an isoquant and isocost curves,with labor on the horizontal axis and capital on the vertical axis,
a)show a firm's efficient combination of capital and labor needed to produce 100 television sets per day.(You may use abstract quantities such as K₁ and L₁ or actual numbers. )
b)Is this the least cost means of producing this level of output? Explain.
c)Next,using a dashed line,on the same graph draw the change that would occur in the long run if the cost of labor were to rise relative to the cost of capital and the firm's output were to remain fixed at 100 television sets per day.
d)Now,suppose that before the price change took effect,labor in this industry had succeeded in protecting against job loss by forbidding firms from getting rid of labor and substituting it with capital.Draw the new isocost curve assuming the company still wishes to produce 100 television sets each day.
e)Is labor made better off in the long run as a result of this labor saving campaign? Explain.

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Definitions:

Stadium Capacity

The maximum number of spectators that a sports venue can accommodate.

Reservation Price

The maximum or minimum price a consumer is willing to pay for a good or service.

Utility Function

A mathematical representation of a consumer's preference ranking for various bundles of goods, used in economics to analyze consumer behavior.

Barbie's Preferences

This term does not reference a recognized economic concept, but could figuratively refer to a theoretical model of consumer choice or preference, using Barbie as an example.