Question: Show graphically a hypothetical cost minimization point for a representative firm producing your chosen product. Draw a convex isoquant. Put labor (L) on the horizontal

  1. Show graphically a hypothetical cost minimization point for a representative firm producing your chosen product. Draw a convex isoquant. Put labor (L) on the horizontal axis and capital (K) on the vertical axis. Next, show graphically how a change in the price of capital (choose either an increase or decrease) will affect the cost minimization choice. Discuss how the change in the cost of capital affects the quantity of K and L chosen by the firm. Explain your reasoning. How will this change in the cost of capital affect the marginal rate of technical substitution? (i.e. Will it increase or decrease? Why?)

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