Suppose, the demand and supply curve in a US manufacturing firm are provided as follows: ES = 20 + 2w ED = 70 − 3w where E is the level of employment and w is the hourly wage. Let’s assume this firm shows the representative wage of the manufacturing industry. Suppose the price of each unit of capital used in this industry is $25. The price of output is constant at $50 per unit. The production function is f(E,K) = E½K ½ , so that the marginal product of labor is MPE = (½)(K/E) ½ If the current capital stock is fixed at 1,600 units, how much labor should the industry employ in the short run? How much profit will the industry earn?
Suppose, the demand and supply curve in a US manufacturing firm are provided as follows: ES = 20 + 2w ED = 70 − 3w where E is the level of employment and w is the hourly wage. Let’s assume this firm shows the representative wage of the manufacturing industry. Suppose the price of each unit of capital used in this industry is $25. The price of output is constant at $50 per unit. The production function is f(E,K) = E½K ½ , so that the marginal product of labor is MPE = (½)(K/E) ½ If the current capital stock is fixed at 1,600 units, how much labor should the industry employ in the short run? How much profit will the industry earn?
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.7P
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Question
Suppose, the
ES = 20 + 2w
ED = 70 − 3w
where E is the level of employment and w is the hourly wage. Let’s assume this firm shows the representative wage of the manufacturing industry.
Suppose the
f(E,K) = E½K ½ ,
so that the marginal product of labor is
MPE = (½)(K/E) ½
If the current capital stock is fixed at 1,600 units, how much labor should the industry employ in the short run? How much profit will the industry earn?
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