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1. Draw a line diagram illustrating the capital-labour decision once a de- sired level of output has been determined. Show how the desired levels of capital and labour will change if rent becomes relatively cheaper than wages. Show how the diagram changes if a higher level of output is desired.

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Reutas RaTe MRtS→ Slope 아 S50Guarnt _9(L1 K) 8 k* Reutal Rate -falls) , thuus s socost ine gets Move 8o. we Rave both Grulstituhon& ou Now Substitution Labo0 60ช K, buo2rg NOucheaper, & use. ince total puod Cost falls, thus Move olr caan br prduced Budget line (Ssocost une) Rotates outwards , New Sso4hant & ieu Capital- labos Counbiwation (optunad)

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