Consider a firm in a perfectly competitive product market selling each unit of its product for $9. This firm has production function Q=10K1/4L 3/4 For this production function, the marginal (physical) product of capital is 2.5(L/K) 3/4 and the marginal (physical) product of labour is 7.5(K/L)1/4. A. In the short run, capital is fixed at K-4096, if the firm employs L=81 workers it can produce units of output. In order to produce 80 units of output in the short run this firm must use units of labour. . If the labour market has competitive wage $59, the firm will demand units of labour in the short-run. B. When L-81, the firm's marginal revenue product of labour is equal to assuming it is also perfectly competitive in the product industry. E. Suppose the union raises wages by $2. In this case %Aw= the firm to reduce employment by % (This percent value will be graded correct if it is within 0.1). Based on the new short-run quantity of labour demanded, the union can expect units of labour. Calculate the short-run elasticity of labour demand. Assuming labour is a normal input, the union should expect in the long run that the firm will
Consider a firm in a perfectly competitive product market selling each unit of its product for $9. This firm has production function Q=10K1/4L 3/4 For this production function, the marginal (physical) product of capital is 2.5(L/K) 3/4 and the marginal (physical) product of labour is 7.5(K/L)1/4. A. In the short run, capital is fixed at K-4096, if the firm employs L=81 workers it can produce units of output. In order to produce 80 units of output in the short run this firm must use units of labour. . If the labour market has competitive wage $59, the firm will demand units of labour in the short-run. B. When L-81, the firm's marginal revenue product of labour is equal to assuming it is also perfectly competitive in the product industry. E. Suppose the union raises wages by $2. In this case %Aw= the firm to reduce employment by % (This percent value will be graded correct if it is within 0.1). Based on the new short-run quantity of labour demanded, the union can expect units of labour. Calculate the short-run elasticity of labour demand. Assuming labour is a normal input, the union should expect in the long run that the firm will
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
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