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