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Suppose a firm’s production function is given by Q= F(K,L) . Describe the differences between the...

Suppose a firm’s production function is given by Q= F(K,L) . Describe the differences between the firm’s demand for labour in the short-run and long-run

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Answer #1

Firm have only two inputs to produce the good. One is capital (K), other is labor (L). In short run, firm owner try to raise the production level by hiring more labor because spending money on capital involves buying new machinery, new equipments and building which is a big investment for firm in short run while they invest more money on capital in long run. It says that firm demand for labor is inelastic in short run while elastic in long run because production is more dependent on machineries in long run.

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