Question

4. Brainy Corp produces slogans (e.g. "Acme Dog Chow, it's doggone good!"). Consider the two graphs below that show several isoquants and the marginal cost curve for Brainy Corp, as well as some Isocost curves that arise at current input prices. 320 MC(9) 120 4029 Sifh 60 10 20 30 40 50 60 70 80 Gslogans 20 40 60 80 XI a. From the pictures above, we know that the price of input 1 is higher than the price of input 2. True, False, or can't you tell given this information? (Briefly explain why you give the answer that you do) b. If the price of input 1 falls, will Brainy Corp likely produce more, fewer, or the same amount of slogans? (Briefly explain why you give the answer that you do)

Answer 1

22 - 4 = 1 1 slope of the budget line - I so, change in x = change in a, a I so price of inport 1 is same as price of input 2. slope of budept line = 40 = 60 - 80 = 1 0 60 501 by If price of input 1 falls, then isoccast line becomes flatter and if input 1 price of input 1 falls, b rulative price of input I falls and by substitution effect in more input 1 is used and produchon of q increases.