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    Budgets and isoquants

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    Comparison of solution for class exercise.
    How was the $1600 & $2000 budget calculated as well as the corresponding labor/capital input for each?

    See the attached file.

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    Solution Preview

    See the attached file.

    For the initial budget of $800, the firm can purchase 20 units of labor or 40 units of capital. Holding these input prices constant, we can increase the budget to create new budget lines with the same slope. Possible budgets of $1600 and $2000 are shown. Notice that for the first budget, the percentage change in inputs has increased by more than the ...

    Solution Summary

    Long run production functions and the corresponding labor/capital inputs are provided in the solution.