00:01
So here we're talking about costs and costs here are a choice between labor and capital, right? and originally the iso -cost line would look, right? the rental rate of capital is 100 and the wage is equal to 10.
00:18
So the isocost line would look something like this, for example, right? here's my iso -cost.
00:24
And if you said like, let's say, 10 and 100, this blue line would, be equal to the thousand iso cost, right? because all points on that line cost the firm a thousand, right? so here, the new rates are going to go to up.
00:45
So now it's going to be 120 and 15.
00:50
So, right? so with 1 ,000, you can afford less, right? so, and notice that the wage is going up.
00:59
And notice that the wage is going up by much more.
01:01
So the new wage would be something like 66 .6 and the new capital would be a thousand over 120, which is going to be 8 .333.
01:15
So this would be the new isaicost line, right? and you'll notice that the slope has changed, right? the slope change reflects the changing marginal, the changing relative price.
01:31
Right.
01:32
Capital is getting cheaper relative to labor.
01:36
Right.
01:37
K is now cheaper to labor in comparison, right? because the price of capital went up by 20%, but the price of labor went up by 50%...