Short run scale effect and long run substitution effect
Problem: Use an isoquant/isocost diagram and words to show how firms will respond to a decrease in the wage rate. Be sure to identify the short run scale effect and the long run substitution effect.
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Use an isoquant/isocost diagram and words to show how firms will respond to a decrease in the wage rate. Be sure to identify the short run scale effect and the long run substitution effect.
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