A packing company uses two inputs: labor and glue. Suppose the work costs $ 10 / hour (salary) and the glue costs $ 5 / gallon and that the company has a budget of $ 100,000. Draw the line on lined paper isocost for the company. In the same diagram, draw a curve isoquant indicating that the company cannot produce more than 1,000 containers that budget.
With regard to the above question, assume that the salary increases to $ 20 / hour while the glue price increases to $ 6.00 / gallon. How to change the optimal ratio between inputs as a result of these changes? What would happen to the path of expansion of the company?