Question

Consider a firm for which production depends on two normal inputs, labor and capital, with prices...

  1. Consider a firm for which production depends on two normal inputs, labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w=4 and r=2. These prices shift to w=8 and r=6.

  1. In which direction will the substitution effect change the firm’s employment and capital stock?

  1. In which direction will the scale effect change the firm’s employment and capital stock?

  1. Can we say conclusively whether the firm will use more or less labor? More or less capital?
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider a firm for which production depends on two normal inputs, labor and capital, with prices...
Consider a firm for which production depends on two normal inputs, labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w=4 and r=2. These prices shift to w=8 and r=6. In which direction will the substitution effect change the firm’s employment and capital stock? In which direction will the scale effect change the firm’s employment and capital stock? Can we say conclusively whether the firm will use more or less labor? More or...
A pen maker uses labor and capital to produce their pens. They are both normal inputs...
A pen maker uses labor and capital to produce their pens. They are both normal inputs with prices w and r respectively. Initially workers were earning a wage of $10 per hour and capital was paying a rental rate of $8 per hour. If the input prices then changed to w=$7 and r=$6, what would be the substitution effect and scale effect? Would the firm employ more or less labor? more or less capital?
Consider a firm that used only two inputs, capital (K) and labor (L), to produce output....
Consider a firm that used only two inputs, capital (K) and labor (L), to produce output. The production function is given by: Q = 60L^(2/3)K^(1/3) . a.Find the returns to scale of this production function. b. Derive the Marginal Rate of Technical Substitutions (MRTS) between capital and labor. Does the law of diminishing MRTS hold? Why? Derive the equation for a sample isoquant (Q=120) and draw the isoquant. Be sure to label as many points as you can. c. Compute...
a firm produces a product with labor and capital as inputs. The production function is described...
a firm produces a product with labor and capital as inputs. The production function is described by Q=LK. the marginal products associated with this production function are MPL=K and MPK=L. let w=1 and r=1 be the prices of labor and capital, respectively a) find the equation for the firms long-run total cost curve curve as a function of quantity Q b) solve the firms short-run cost-minimization problem when capital is fixed at a quantity of 5 units (ie.,K=5). derive the...
Suppose a typical firm uses K and L inputs that have per unit costs of w...
Suppose a typical firm uses K and L inputs that have per unit costs of w and c, respectively. Initially, the firm is in LR equilibrium when input prices are w=6 and c=4, then suppose input prices change to w=4 and c=2. How will the substitution effect impact the firm’s utilization of K and L? How will the scale effect impact the firm’s utilization of K and L?    Overall, can we say with any certainty whether the overall utilization of...
A firm produces a product with labor and capital. Its production function is described by Q...
A firm produces a product with labor and capital. Its production function is described by Q = min(L, K). Let w and r be the prices of labor and capital, respectively. a) Find the equation for the firm’s long-run total cost curve as a function of quantity Q and input prices, w and r. b) Find the solution to the firm’s short-run cost minimization problem when capital is fixed at a quantity of 5 units (i.e., K = 5). Derive...
2. Optimal Inputs Your boss has given you the following production function for labor (L) and...
2. Optimal Inputs Your boss has given you the following production function for labor (L) and capital (K) used by your company: q¯ = K0.2L 0.8 You want to produce q = 100 units for sale and faces prices for labor of w = 2 and capital of r = 6. a) What is the marginal rate of technical substitution? b) What are the optimal amounts of each input used by the firm? Round to three decimal places as needed....
a. A firm uses only two inputs: capital (K) and labor (L).Currently, the firm’s choice of...
a. A firm uses only two inputs: capital (K) and labor (L).Currently, the firm’s choice of capital (K) and labor (L) are such that marginal product of capital is 80 and the marginal product of labor is 10. If one put Labor on the x-axis, derive the slope of the firm’s isoquant given the information above (include the formula you use to do this). b. The price of capital (Pk) is $40 and the price of labor (PL) is $20....
Consider a firm facing a Cobb-Douglas production function with two inputs, labor and capital. Suppose that...
Consider a firm facing a Cobb-Douglas production function with two inputs, labor and capital. Suppose that cost of capital is double the wage rate. What is the slope of the firm’s isocost curve? (Your answer must be a number.)
Consider a purely competitive firm that has two variable inputs L (labor hour) and K (machine)...
Consider a purely competitive firm that has two variable inputs L (labor hour) and K (machine) for production. The price of product is $p. The production function is Q (K, L) = 4L^1/4 K^1/4 . Assume that the hourly wage of workers is fixed at $w and the price per machine is $r. (a) Set up the objective of this firm. (b) State the first-order necessary conditions for profit maximization. (c) Write out the optimal inputs quantities, L and K,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT