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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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