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Q7-9. Suppose the hourly wage is $2, the price of each unit of capital is $4, and the price of output is $8 per unit. Assume that the firm cannot affect any of these prices. The production function of the firm is f (E,K)= (KE) 1/2

Q7-9. Suppose the hourly wage is $2, the price of each unit of capital is $4, and the price of output is $8 per unit. Assume that the firm cannot affect any of these prices. The production function of the firm is f (E,K)= (KE) 1/2

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Q7-9. Suppose the hourly wage is $2, the price of each unit of capital is $4, and the price of output is $8 per unit. Assume that the firm cannot affect any of these prices. The production function of the firm is f (E,K)= (KE) 1/2 7. If the current capital stock is fixed at 9 units, how many hours of labor should the firm hire in the short run (i.e., what should E be)? (a) 24 (b) 30 (c) 36 (d) 42 8. Now let's think about the long run, in which the firm can freely choose both labor and capital. If the firm is maximizing profits, what must be the ratio of K to E be? (a) 1/2 (b) 1 (c) 3/2 (d) 2 9. If the firm produces 40 units of output with aforementioned factor prices for labor and capital, what would be the cost- minimizing bundle of labor and capital? (a) K=40, E=40 (b) K=40/v2, E=40//2 (c) K=40/V2, E=80//2 (d) K=80, E=40/V2 (e) K=20, E=40
Transcribed Image Text:Q7-9. Suppose the hourly wage is $2, the price of each unit of capital is $4, and the price of output is $8 per unit. Assume that the firm cannot affect any of these prices. The production function of the firm is f (E,K)= (KE) 1/2 7. If the current capital stock is fixed at 9 units, how many hours of labor should the firm hire in the short run (i.e., what should E be)? (a) 24 (b) 30 (c) 36 (d) 42 8. Now let's think about the long run, in which the firm can freely choose both labor and capital. If the firm is maximizing profits, what must be the ratio of K to E be? (a) 1/2 (b) 1 (c) 3/2 (d) 2 9. If the firm produces 40 units of output with aforementioned factor prices for labor and capital, what would be the cost- minimizing bundle of labor and capital? (a) K=40, E=40 (b) K=40/v2, E=40//2 (c) K=40/V2, E=80//2 (d) K=80, E=40/V2 (e) K=20, E=40
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