Shouldn\'t the firm employ more labor and less capital? It will rotate the isoco

Question

Shouldn't the firm employ more labor and less capital? It will rotate the isocost line so that it becomes tangent to the isoquant line at point F. The answer says the otherwise and I don't understand.

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. 16 8 Q-4000 Q-3000 Q-2000 1000 10 2030 40 50 Quantity of L FIGURE 8-6 Refer to Figure 8-6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. In order to maintain its output and minimize costs this firm should

Explanation / Answer

Its given in the question that the firm is producing 3000 golf tees and is actually at point F on the isoquant map. This means that the firm is at a point where it is already using more labor and less capital and this combination is not optimal as at this point, the firm is not at a point where the isocost is tangent to the isoquant. This combination needs to be changed such that it is optimal and is producing at minimum possible cost. Given the above mapping, we can clearly see that producing with lower labor and higher capital and make the firm to be able to shift to point E from point F while maintaining the output of 3000 units. Thus this is what the firm should do - reduce labor and increase capital. At point E, the production is at equilibrium because the isocost is tangent to the isoquant line. This will minimise cost while maintaining the output.

Best of Luck :)

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