The following graph shows isoquants for the technologically efficient bundles of labor and capital for producing 100 and 200 units of output (labeled q=100 and q=200q=100 and q=200, respectively). Suppose the firm is initially using the cost-minimizing bundle of labor and capital for producing 100 units of output, represented by point A.
Suppose that the firm wants to compare the short-run costs and long-run costs associated with producing 100 units with the costs associated with other levels of production. Assume that the firm is currently committed to 50 units of capital.
Complete the following table by entering the total amount the firm would have to spend on capital and labor at each level of production in both the short run and the long run if the wage rate (w) is $20 and rental rate of capital (r) is $40.
Quantity Short-Run Costs Long-Run Costs
(Dollars) (Dollars)
Produced (Capital is ) (Capital is )
0 100 200 The following graph is intended to help you answer the question that follows.First, use the orange points (square symbols) to plot the total long-run costs when producing 0, 100, and 200 units of output. Then, use the blue points (circle symbols) to plot the total short-run costs associated with producing 0, 100, and 200 units of output.Note: Select and drag the curve from the palette to the graph. To move a point on the curve, select and drag to the desired position. You will not be graded on your placement of any objects on the graph.
True or False: According to this graph, the firm's long-run costs are never higher than its short-run costs.