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Suppose that the price of capital increases

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Assume a general production function where .

(a) Assume the firm wants to maximize profits. State the firm's maximization problem and take the first order conditions.

(b) Suppose that the price of capital increases. The workers are now worried that the increase in the price of capital will cause the firm to cut back on its labor and there will be layoffs. Are the workers correct? Make sure to fully explain your answer.

Reference no: EM132480016

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