Fashion Fantasy Company and Silky Style Company are each capable of minimizing their costs and can produce 8,000 pieces of garment per month. Fashion Fantasy’s factory is located in an area where the cost of labor is significantly less and the cost of capital is significantly more than those of Silky Style’s. Assume that each company has access to the same technology to produce garments and draw an isoquant/isocost diagram to illustrate why the cost-minimizing combinations of inputs for these companies are different. Be sure to identify the isocost line, amount of capital, amount of labor, and cost-minimizing combination of inputs for each company.
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