Given: Let w = price of labor (L) and r = price of capital (K) and (C) is cost

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Given: Let w = price of labor (L) and r = price of capital (K) and (C) is cost.

Suppose w=10; r= 5 and C=$100, referring to the isocost equation,

1.      How many units would the capital be if there is no hired labor?

2.      How many units would the labor be if there is no rented capital?

3.      Show in a graph the isocost line.

4.      Suppose the cost (C) fell to $75, what does this denote for K and L? Show the new isocost line in the same illustration in no. 3.

5.      Suppose the wage increased to 20 and the rent and the cost as given remain the same , what would be the new isocost line? Show graphically.