Draw an isoquant map showing 4 different isoquants. Label these Q1, Q2, Q3, and Q4.
Graph the following curves by clicking here
a.
Which isoquant represents the highest output level?
b.
Draw a straight, downward-sloping line representing the factor price ratio w/r. Draw this line so that it is just tangent to isoquant Q3, and label it (w/r)1. How much capital and how much labor would this firm employ? Mark these points on your graph as K1 and L1.
c.
Suppose
capital became more expensive relative to labor. Assuming this firm wishes
to continue to produce Q3
units of output, how would this affect your graph? Indicate this change
on your graph, and label the new factor price line (w/r)2.
How would this firm change its choice of how much capital and labor to
use in reaction to the change in relative factor prices? Mark the new
quantities on your graph as K2
and L2.
