**Question 2:** The production function is given by $ Y = \min(2L, K) $. Assume that the firm has a fixed stock of capital of 20 units. The price of labor is $ \$w $ per worker and the price of output is $ \$p $ per unit.**b. Graph the production function**- The production function described is a Leontief or fixed proportion type, where output $ Y $ is determined by the lesser of two values: $ 2L $ (twice the labor employed) or $ K $ (capital). With $ K $ fixed at 20, the graph would show a line where $ Y = 2L $ up to the point where $ 2L = 20 $.**c. Find the labor demand. Show the two possible cases.**- **Case 1:** If $ 2L < K $, the output is limited by labor. Therefore, $ Y = 2L $.- **Case 2:** If $ 2L \geq K $, the output is limited by capital. Therefore, $ Y = K $. Since $ K $ is fixed at 20, the labor demand would ensure $ 2L = 20 $, leading to $ L = 10 $.**d. Assume the firm hires a positive amount of labor. How does $ L^* $ change if wages drop? Show graphically.**- When wages drop, the firm can afford to hire more labor for the same cost, which leads to an increase in the optimal labor demand $ L^* $ if it was not already constrained by capital. Graphically, this would show a rightward shift in the quantity of labor hired along the labor demand curve, up to the point where $ 2L $ approaches $ K $.

Answered: Image /qna-images/answer/5fb20c96-e9b1-4840-80e3-be8db2e5d12d.jpg

Question 2: The production function is given by Y-min(2L,K). Assume that the firm has a fixed stock of capital of 20 units. The price of labor is $w per worker and the price of output is $p per unit. b. Graph the production function C. Find the labor demand. Show the two possible cases. d. Assume the firm hires a positive amount of labor. How does L* change if wages drop? Show graphically.

Question 2: The production function is given by Y-min(2L,K). Assume that the firm has a fixed stock of capital of 20 units. The price of labor is $w per worker and the price of output is $p per unit. b. Graph the production function C. Find the labor demand. Show the two possible cases. d. Assume the firm hires a positive amount of labor. How does L* change if wages drop? Show graphically.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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