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1. (10 + 10 points) (Appendix Problem from Principles of Economics by Case, Fair,
and Oster) In the graph below, you can see the iso-cost curve and the iso-quant
curve for the firm to produce q = 1000 units of output. Note that the vertical axis
shows the quantity of capital while the horizontal axis shows the quantity of labor.
Suppose that the firm is producing 1000 units of output at point A, using 200 units
of capital and 100 units of labor.
(i) As an outside consultant, what actions would you suggest to management to
improve profits?
(ii) What would you recommend if the firm were operating at point B, using 100
units of capital and 200 units of labor? Explain your answer.
Sagot :
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