Suppose that Manny, Jack, and Moe can hire workers for $12 per hour, or can rent capital for $7 per hour.
a. Write an expression for Manny, Jack, and Moe's total cost as a function of how many workers they hire and how much capital they employ.
b. Assume that Manny, Jack, and Moe wish to hold their total costs to exactly $100. Use your answer from (a) to find the equation for an isocost line corresponding to exactly $100 of costs. Rearrange your equation to isolate capital.
c. Graph the equation for the isocost line, putting labor on the horizontal axis and capital on the vertical axis.
d. What is the vertical intercept of the line you drew? The horizontal intercept? What does each represent?
e. What is the slope of the line you drew? What does it represent?
f. Suppose that bargaining with the local labor union raises wages. Manny, Jack, and Moe must now pay $14 per hour. What happens to the isocost line corresponding to $100 of expenditure? Explain. Show the new isocost line on your graph.