Optimal choices of labor and capital after the wage change

Assignment Help Business Economics

Reference no: EM131005395

Suppose we now care about the long run decisions of a firm that has a production function of the form q = 4L^1/2 + K

Suppose w = 1 and r = 0.5

Assume that, at the beginning when w0 = 1 and r = 0.5, the firm chose to produce q0 = 20 units of output. Then, the wage increased to w1 = 2 and in consequence the firm chose to produce q1 = 10 units of output.

(a) Calculate the optimal choices of labor and capital after the wage change.

(b) Draw the old and new isocosts lines

(d) Calculate the substitution effect

(e) Calculate the elasticity of substitution

Reference no: EM131005395

Questions Cloud

Prepare a lease amortization schedule and appropriate entrie : Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the inception of the lease through January 1, 2012. Edison's fiscal year ends December 31.

Manufacturer is contemplating introducing a product : A manufacturer is contemplating introducing a product that is inferior to its competition in its performance, design, and functionality. However, the manufacturer believes that “good brand marketing” can overcome these shortfalls. Why is this thinkin..

Inability of the restaurant to monitor customer expectations : We all have “service failure” stories to tell. As a matter of fact, most people love to tell about a time when a firm provided sub-par service to us as consumers. Sometimes these stories are humorous and other times they are sad. However, was that se..

Cabrini community college charged her a flat tuition : Each term, Dana, a student at Cabrini Community College has a budget of $4,000 she can spend on college credits and drama classes. Each college credit costs $200, while a drama class costs $100. In your graph, add an indifference curve to illustrate ..

Optimal choices of labor and capital after the wage change : Suppose we now care about the long run decisions of a firm that has a production function of the form q = 4L^1/2 + K. Assume that, at the beginning when w0 = 1 and r = 0.5, the firm chose to produce q0 = 20 units of output. Then, the wage increased t..

Prepare appropriate entries for international machines : Prepare appropriate entries for International Machines to record the arrangement at its commencement, January 1, 2013, and on March 31,2013.

What is the income elasticity of demand for steak : Suppose that after hurricane Irene, the average income in Cape Charles, Virginia decreased by 14%. In response to this change in income, suppose the demand for steak in Cape Charles decreased by 4%. What is the income elasticity of demand for steak?

Design latest version of that where it can show exact level : Design a latest version of that where it can show exact level of the water in over head tank by using a seven segment display.

Determine the appropriate lease classification : Each of the four independent situations below describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee and indicate why.

User Account

All Pages