XYZ Co operates in a competitive market. Its production function is q = L?K?. The exponents, ? and ?, are both less than 1. The firm's capital is fixed, and it takes the wage and price as given. Derive the firm's short-run demand for labor as a function of K, w, and p. How does the firm react to an increase in the wage rate?
What will be an ideal response?
MPL = ?L?-1K?. The firm sets w = p(?L?-1K?). Rearranging to solve for L yields
L = (w/p?K?)1/(?-1). Since a < 1, L increases when p and K increase, and decreases when w increases.
You might also like to view...
The table above gives information about the economy of France. The growth rate of real GDP per person in 1998 is ________ percent
A) 0.4 B) 3.1 C) 1.9 D) 3.6 E) 4.0
If absolute property rights to an endangered resource are granted to someone who inefficiently manages the resource, explain what the Coase theorem predicts will happen to that resource
What will be an ideal response?
A perfectly competitive firm's marginal cost exceeds its marginal revenue at its current output. To increase its profit, the firm will
A) lower its price. B) raise its price. C) decrease its output. D) increase its output.
Compared to perfect competition, a monopoly in the long run
A. produces a larger output. B. charges a higher price. C. produces the minimum average cost. D. All of these responses are correct.