D 8
E 6
F 4
G 2
a. As we move from A to G, are the production methods
becoming more or less capital intensive? Explain.
b. If capital costs $8 per unit and labour costs $4 per unit,
which production method minimizes the cost of
producing 1000 kg of flour?
c. For each of the methods that are not cost minimizing
(with the factor prices from part (b)), describe how the
firm would have to adjust its use of capital and labour to
minimize costs.
d. Now suppose the price of capital falls to $4 per unit and
the price of labour rises to $6 per unit. Which method
now minimizes costs?
12. Consider the following diagram of SRATC and LRAC curves.