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A new shop has opened and has the following production function:

Q=E4/5 K1/7

The price of output is $22, the wage rate is $7, and the rental rate for capital is $5 per unit.

a. Find the short-run profit maximizing level of labor demand if capital is fixed at 20 units.

b. Find the long-run profit maximizing level of labor demand and capital demand.

c. If wages change to $9, which effect is stronger for capital, substitution or scale?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939148

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