Consider a market in long-run equilibrium-cost-minimizing

Reference no: EM13699473

Consider a market in long-run equilibrium, where the firm’s mix of inputs is the cost-minimizing mix of inputs.

a. Use a graph that includes isocosts and isoquants to illustrate cost minimization for a firm producing q units of output.

b. Verbally explain the conditions that must be present for a firm to minimize its cost of producing a certain quantity of output.

c. Holding output constant, illustrate and explain the effect a decrease in the price of capital has on the cost-minimizing mix of inputs.

d. What effect, if any, does the decrease in the price of capital have on the firm’s marginal cost of production? Explain.

e. Does a change in the price of capital affect the firm’s profit-maximizing output? Explain.

f. What effect does a reduction in the price of capital have on the firm’s demand for labor? Use the analysis from above to explain your answer.

Reference no: EM13699473

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