LABOR DEMAND, PART 1 Suppose output, Q, is produced by labor, L, and capital, K, according to the following function: Q = K ½ L½.. Suppose the firm sells each unit of output in a competitive market for a price P = $100. Suppose the firm hires each unit of labor in a competitive market for a wage W = $25. Suppose the firm has to make do for now with a stock of capital K = 49; moreover, suppose each unit of capital costs R = $75. A. How much labor will be demanded by the firm? Demonstrate and explain. B. At the "optimal" quantity of labor, what is the capital-to-labor ratio K/L? Demonstrate and explain. C. Utilizing the "optimal" quantity of labor, how much profit will the firm earn?
LABOR DEMAND, PART 1 Suppose output, Q, is produced by labor, L, and capital, K, according to the following function: Q = K ½ L½.. Suppose the firm sells each unit of output in a competitive market for a price P = $100. Suppose the firm hires each unit of labor in a competitive market for a wage W = $25. Suppose the firm has to make do for now with a stock of capital K = 49; moreover, suppose each unit of capital costs R = $75. A. How much labor will be demanded by the firm? Demonstrate and explain. B. At the "optimal" quantity of labor, what is the capital-to-labor ratio K/L? Demonstrate and explain. C. Utilizing the "optimal" quantity of labor, how much profit will the firm earn?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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LABOR DEMAND, PART 1 Suppose output, Q, is produced by labor, L, and capital, K, according to the following function: Q = K ½ L½.. Suppose the firm sells each unit of output in a competitive market for a price P = $100. Suppose the firm hires each unit of labor in a competitive market for a wage W = $25. Suppose the firm has to make do for now with a stock of capital K = 49; moreover, suppose each unit of capital costs R = $75. A. How much labor will be demanded by the firm? Demonstrate and explain. B. At the "optimal" quantity of labor, what is the capital-to-labor ratio K/L? Demonstrate and explain. C. Utilizing the "optimal" quantity of labor, how much profit will the firm earn?
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