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Consider a firm where, in the long-run, K and L are imperfect substitutes. The firm is currently production 1000 units of output with K = 10 and L = 2. A this mixture of inputs, the MRTS is 8. The cost of labor is 8 and the cost of capital is 24.
(a) Is the firm minimizing the long-run cost of production?
(b) Graph the situation with K on the y-axis.
(c) If the firm is not minimizing long-run costs, what should it do?
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