Analyse effect of an increase in price of capital on demand

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Reference no: EM131505077

Question: A firm uses 8 units of labour and 24 units of capital to produce 24 units of output. If there are constant returns to scale and the marginal product of labour is 1.5, what is the marginal product of capital? Will it be greater or smaller if technology instead displays diminishing returns to scale? Analyse the effect of an increase in the price of capital on the demand for labour when the elasticity of substitution between labour and capital is low and the elasticity of the demand for output is high.

Reference no: EM131505077

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