End Of CH Que NO: 2

Draw the isoquant corresponding to the following table, which shows the alternative combinations of labour and capital required to produce 100 units o

Draw the isoquant corresponding to the following table, which shows the alternative combinations of labour and capital required to produce 100 units of output per day of good X.

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\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
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K

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 16

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 20

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 262/3

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40

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60

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80

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100

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L

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200

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160

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120

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80

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531/3

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40

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 32

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(a)  Assuming that capital costs are £20 per day and the wage rate is £10 per day, what is the least-cost method of producing 100 units? What will the daily total cost be? (Draw in a series of isocosts.)

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(b)  Now assume that the wage rate rises to £20 per day. Draw a new set of isocosts. What will be the least-cost method of producing 100 units now? How much labour and capital will be used?

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