The table below defines the inputs required in the long run to produce three different output levels using different combinations of capital and labour. The cost of labour is $5 and the cost of capital is $2 per unit.
(a) Calculate the least-cost method of producing each of the three levels of output defined in the bottom row.
(b) On a graph with cost on the vertical axis and output on the horizontal axis, plot the relationship you have calculated in (a) between cost per unit and output. You have now plotted the long-run average cost.