Problem
Assume a unit of labour costs the firm R15 000 per month, and the cost for each unit of capital is R25 000 per month.
A. Which method is the most cost-effective for manufacturing 300 cars? Show your calculations.
B. Graphically illustrate the isocost line for the cost-effective production method with labour on the x-axis and capital on the y-axis.
C. Now, suppose that the government offers a R3 000 wage subsidy per unit of labour per month to car manufacturers. Explain the effect of the wage subsidy on the choice of production methods by car manufacturers and graphically illustrate the new isocost line.