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

Q=E0..35 K0.6

The price of output is $20, the wage rate is $11, and the rental rate for capital is $8 per unit.

a. Find the short-run profit maximizing level of labor demand if capital is fixed at 40 units.

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

c. Find the long-run the elasticity. You do not need to show your math on the answer page you will submit for grading.

d. If wages change to $10, which effect is stronger for capital, substitution or scale?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939146

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