Consider a production function Y = KªL1-«.a) What is the marginal product of capital? Write down the formula and show your working.b) Write down the profit maximization problem for the firm. c) Use your previous answer to (a) and (b) to write down the labor demandcurve which relates the quantity of labor the firm demands to the price oflabor (i.e. the wage).d) If the quantity of labor supplied increases by 1%, what is the increase inthe firm's output? State your answer in terms of expenditure shares.e) If the quantity of labor supplied increases by 1%, what is the change inthe real wages of workers?f) If this production function is to represent the US economy, what is areasonable value to choose for a? Why?

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Consider a production function Y KªL1-a. a) What is the marginal product of capital? Write down the formula and show your working. b) Write down the profit maximization problem for the firm.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a production function Y = KªL1-«.
a) What is the marginal product of capital? Write down the formula and show your working.
b) Write down the profit maximization problem for the firm.

c) Use your previous answer to (a) and (b) to write down the labor demand
curve which relates the quantity of labor the firm demands to the price of
labor (i.e. the wage).
d) If the quantity of labor supplied increases by 1%, what is the increase in
the firm's output? State your answer in terms of expenditure shares.
e) If the quantity of labor supplied increases by 1%, what is the change in
the real wages of workers?
f) If this production function is to represent the US economy, what is a
reasonable value to choose for a? Why?

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