Suppose we now care about the long run decisions of a firm that has a production function of the form q = 4l^1/2 + k

suppose w = 1 and r = 0.5

assume that, at the beginning when w0 = 1 and r = 0.5, the firm chose to produce q0 = 20 units of output. then, the wage increased to w1 = 2 and in consequence the firm chose to produce q1 = 10 units of output.

(a) calculate the optimal choices of labor and capital after the wage change.

(b) draw the old and new isocosts lines

(c) calculate the scale effect

(d) calculate the substitution effect

(e) calculate the elasticity of substitution

Exercise 6-2 variable costing income statement; explanation of difference in net operating income [lo6-2] ida sidha karya company is a family-owned company located on the island of bali in indonesia. the company produces a handcrafted balinese musical instrument called a gamelan that is similar to a xylophone. the gamelans are sold for $970. selected data for the company’s operations last year follow: units in beginning inventory 0 units produced 200 units sold 180 units in ending inventory 20 variable costs per unit: direct materials $ 130 direct labor $ 300 variable manufacturing overhead $ 30 variable selling and administrative $ 15 fixed costs: fixed manufacturing overhead $ 63,000 fixed selling and administrative $ 25,000 the absorption costing income statement prepared by the company’s accountant for last year appears below: sales $ 174,600 cost of goods sold 139,500 gross margin 35,100 selling and administrative expense 27,700 net operating income $ 7,400 required: 1. under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year? 2. prepare an income statement for last year using variable costing.