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A firm uses labor (L) and machines (K) to produce some output. The cost of labor is $40 per unit and the cost of using a machine is $10.
(a) Derive an equation for the isocost line.
(b) Draw an isocost line for this firm, showing combinations of labor and machines that have a total cost of $400. Label this line (C0 = $400). Draw another line (on the same graph) showing combinations that cost $200. Label this line (C1 = $200). Be sure to clearly identify the intercepts.
(c) What is the slope of the isocost line C0 = $400? What is the slope of the isocost line C1 =$200?
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