Assume that a firm that manufactures widgets can produce them with one of three processes used alone or in combination. The following table indicates the amounts of capital and labor required by each of the three processes to produce on widget.
UNITS OF LABOR UNITS OF CAPITAL
Process 1 4 1
Process 2 2 2
Process 3 1 3
a. Assuming capital costs $3 per unit and labor costs $1 per unit, which process will be employed?
b. Plot the three points on the firm's TVC curve corresponding to q = 10, q = 30, and q = 50.
c. At each of the three output levels, how much K and L will be demanded?
d. Repeat parts a. through c. assuming the price of capital is $3 per unit and the price of labor has risen to $4 per unit.