1. Consider a firm producing widgets using capital and labor. The graph below illustrates the isoquant for

producing 10 widgets, the firm's total expenditure line, and the cost minimizing combination of capital

and labor used to produce 10 widgets given the wage and cost of capital.

a. Suppose the wage (w) is $10 and the cost of capital (v) is $15. What is the average total cost of

producing 10 widgets when they are produced in the least-cost way?

b. Still using w=$10 and v=$15, what is the Rate of Technical Substitution at the point K-6 and L=8? How

do you know?

c. Suppose that, at K-6 and L=8, the marginal product of labor is 20. Continue using w=$10 and v=$15.

What is the marginal product of capital at this point? How do you know?

d. Suppose the wage rises to $15. Draw a new total expenditure line representing the least-cost way of

producing q=10, based on this new wage and the original cost of capital (v=$15). How will the new least-

cost method of producing q=10 change now that the wage has changed?