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    Production and cost analysis

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    1) The production engineers at Impact Industries have derived the expansion path shown in the following figure. The price of labor is $100 per unit.
    a) What price does Impact Industries pay for capital?
    Let us consider the point of intersection of the iso- quant 120 and the iso-cost curve 40-8. At the point of intersection if the labor used is 4 and the cost of labor is $100, the total cost of labor is $400. Similarly, the units of capital used are 20 and the total cost of capital is $400, the price that Impact Industries pays for capital is $400 divided by 20 equals $20 per unit of capital. This is the price of capital.

    b) If the manager at Impact decides to produce 180 units of output, how much labor and capital should be used in order to minimize total cost?
    The point where the cost will e minimized will be on the expansion path. So on the expansion path for 180 units of output the amount of labor and ...

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