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Question: biosolid systems is a small business that employs 20 minimum...

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Biosolid Systems is a small business that employs 20 minimum wage workers and 10 units of capital (in the form of hydro-lines, routers, tanks, etc.) to service 10 systems. Biosolid’s currently minimising costs at $400 per hour, as depicted in the following diagram:

(a) What is the minimum wage and the rental rate where Biosolid Systems is located?

(b) Suppose that the city government doubles the minimum wage in a bid to attract more unskilled workers. Draw a new isocost curve corresponding to C = $400 that reflects this change. How will this impact Biosolid Systems’ cost of serving its customers?

(c) Following protests of the wage increase by small business owners, the city government decides to compensate those owners by sending them a lump-sum subsidy. Biosolid Systems, which was employing 20 workers,receives a check for exactly $200. Show that it is now possible for Biosolid to hire its original combination of inputs and serve its 10 customers at a cost of $400. Draw a new isocost line that reflects the effects of the subsidy.

(d) The combined wage increase and subsidy can potentially have zero impact on Biosolid Systems’ costs. Does this mean Biosolid Systems will once again resume hiring 20 workers and 10 units of capital? 

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