microbook_3e-page102 - Homework#6 Pam owns a public...

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Homework #6 Pam owns a public relations firm that produces flyers, press releases and websites. For simplicity, assume that she out-sources the printing, so that we can ignore inputs of printing machinery and paper. Pam’s firm produces public relations material using two inputs: computers (a form of capital) and the efficiency with which her workers (labor) use those computers. Computers and the efficiency of labor are perfect complements in Pam’s production process. For the past few years, Pam has not noticed any changes in either the labor that she hires or the computers that she rents. Lately however, her workers have been attending Prof. Doviak’s classes and, as a result, they have become much more productive! Pam pays the same rental rate for her computers and the same wage rate to her workers, but now each worker produces twice as much public relations material as they did before, using the same equipment (computers) that they did before. 1. The slope of Pam’s isocost and the slope of Pam’s isoquant are both defined in terms of two “inputs.”
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