Problem 1: Consider a perfectly competitive industry composed of N identical firms in the short run. The firm produces output, q, using labor (L) and capital (K): q=√LK In the short run, each firm's capital is fixed at one unit. Each unit of labor and capital cost w and r respectively. The industry demand curve is given by: P=a-Q, a>0 1. Find the short run equilibrium price, firm output, and industry output. 2. How will the short run equilibrium price and outputs vary with a change in the wage rate, w? Explain your answer. 3. How will the short run equilibrium price and outputs vary with a change in the rental rate, r? Explain your answer.
Problem 1: Consider a perfectly competitive industry composed of N identical firms in the short run. The firm produces output, q, using labor (L) and capital (K): q=√LK In the short run, each firm's capital is fixed at one unit. Each unit of labor and capital cost w and r respectively. The industry demand curve is given by: P=a-Q, a>0 1. Find the short run equilibrium price, firm output, and industry output. 2. How will the short run equilibrium price and outputs vary with a change in the wage rate, w? Explain your answer. 3. How will the short run equilibrium price and outputs vary with a change in the rental rate, r? Explain your answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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![Problem 1: Consider a perfectly competitive industry composed of N identical
firms in the short run. The firm produces output, q, using labor (L) and capital
(K):
q= √LK
In the short run, each firm's capital is fixed at one unit. Each unit of labor
and capital cost w and r respectively. The industry demand curve is given by:
P=a-Q, a>0
1. Find the short run equilibrium price, firm output, and industry output.
2. How will the short run equilibrium price and outputs vary with a
change in the wage rate, w? Explain your answer.
3. How will the short run equilibrium price and outputs vary with a
change in the rental rate, r? Explain your answer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F82b46645-14e3-440f-8c2c-fd00e1b61743%2F2b44a3f1-8d07-46e8-80bd-29128f078251%2Fqzo3b6yh_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 1: Consider a perfectly competitive industry composed of N identical
firms in the short run. The firm produces output, q, using labor (L) and capital
(K):
q= √LK
In the short run, each firm's capital is fixed at one unit. Each unit of labor
and capital cost w and r respectively. The industry demand curve is given by:
P=a-Q, a>0
1. Find the short run equilibrium price, firm output, and industry output.
2. How will the short run equilibrium price and outputs vary with a
change in the wage rate, w? Explain your answer.
3. How will the short run equilibrium price and outputs vary with a
change in the rental rate, r? Explain your answer.
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VIEWStep 3: 2) Discuss the impact of change in the wage rate on short run equilibrium price and outputs
VIEWStep 4: 3) Discuss the impact of change in the rental rate r on short run equilibrium price and outputs
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