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Suppose that there is a decline in the cost of a unit of capital. In the long run:
a.) What will be the substitution effect of this change on use of capital and labor, and why?How would this be shown on an isoquant diagram?
b.) What will be the scale effect of this change on use of capital and labor and why? How would this be shown on an isoquant diagram? c.)What will be the net or total effect of this decline in the cost of capital on the use of capital and labor?
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