output using a typica course, and that hires workers in a competitive labor market. 1. Explain what determines the firm's choice of its labor input. Use a suitable figure. Discuss how changes in the capital stock and in the wage affect the firm's choice of its labor input. Suppose that the firm uses a Cobb-Douglas production function Y K"N1-a. In this case, the marginal product of labor is given by (1- a)K"N-". The parameter a is 2/3, and the firm uses one unit of capital. 2. Calculate (show your steps) how the firm's labor input changes if the wage increases by 1%. 3. Calculate how the firm's labor input changes if the wage is unchanged, but the firm decides to double its capital stock.
output using a typica course, and that hires workers in a competitive labor market. 1. Explain what determines the firm's choice of its labor input. Use a suitable figure. Discuss how changes in the capital stock and in the wage affect the firm's choice of its labor input. Suppose that the firm uses a Cobb-Douglas production function Y K"N1-a. In this case, the marginal product of labor is given by (1- a)K"N-". The parameter a is 2/3, and the firm uses one unit of capital. 2. Calculate (show your steps) how the firm's labor input changes if the wage increases by 1%. 3. Calculate how the firm's labor input changes if the wage is unchanged, but the firm decides to double its capital stock.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider a firm that produces output using a typical production function as discussed in the
course, and that hires workers in a competitive labor market.
1. Explain what determines the firm's choice of its labor input. Use a suitable figure.
Discuss how changes in the capital stock and in the wage affect the firm's choice of its
labor input.
Suppose that the firm uses a Cobb-Douglas production function Y = K"N1-a.
In this case, the marginal product of labor is given by (1– a)K"N-".
The parameter a is 2/3, and the firm uses one unit of capital.
2. Calculate (show your steps) how the firm's labor input changes if the wage increases by
1%.
3. Calculate how the firm's labor input changes if the wage is unchanged, but the firm
decides to double its capital stock.
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