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Figure 6.13 The Impact of Technological Change
An improvement in technology shifts the isoquant image inward to image. The new cost-minimizing input combination (L2, K2) is located at the tangency between Q2 and the isocost C2. (L2, K2) uses fewer inputs and is, therefore, cheaper than the original cost-minimizing input combination (L1, K1) located at the tangency between Q1 and the isocost C1.