3. Production of taxi rides (15%) GlobalTaxi runs taxi services around the globe. GlobalTaxi uses two inputs in production: capital K and labor L. Capital has a rental cost of r, while labor is paid a...

3. Production of taxi rides (15%) GlobalTaxi runs taxi services around the globe. GlobalTaxi uses two inputs in production: capital K and labor L. Capital has a rental cost of r, while labor is paid a wage w.

(a) Derive the expression for GlobalTaxi's isocost function with labor on the right-hand side, and explain what it means.

(b) Explain what happens to the slope of the isocost function when the wage w increases. How will an increase in w typically affect the choice of inputs for a company that has a smoothly declining marginal rate of technical substitution? Why?