Firm N produces output using land and labour. Suppose that currently firm N operates at point A , where 10 units of output are produced with 8 units of labour and 6 units of capital. Suppose that the per unit price of labour equals and the current cost of

Firm N produces output using land and labour. Suppose that currently firm N operates at point A , where 10 units of output are produced with 8 units of labour and 6 units of capital. Suppose that the per unit price of labour equals $\$ 1$ and the current cost of production equals $\$ 20$. (i) Write down the equation for isocost that goes through point A . (ii) Suppose that at point A marginal product of labour is 3 and marginal product of capital is 4 . Assuming that technology of firm N has diminishing MRTS illustrate the isoquant and isocost that go through point A . Assuming that all factors are variable, explain (without any reference to the graph) why the current combination of factors is not the cost minimizing one for given output level and how the total cost could be reduced. (iii) For case (ii) illustrate the cost minimizing combination of factors and denote it by B. Illustrate at your graph the minimum cost of production of 10 units of the good (denote by $\mathrm{C}_{10}$ ). Now, suppose in the short run capital is fixed at $\mathrm{K}=6$. Illustrate at your graph the change in the cost of production in comparison with the long run (denote this change by $\Delta \mathrm{C}$ ). Explain carefully.