Can you say conclusively whether the firm will use more

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Consider a firm that uses two inputs, capital and labor. Initially the prices for these inputs are w = $6 and r = $12. These prices then change to w = $5 and r = $8. a. How will the substitution effect change the firm’s employment of labor? b. In which direction will the scale effect change the firm’s employment of labor? c. Can you say conclusively whether the firm will use more or less labor? More or less capital?

Reference no: EM13150383

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