Which capital and labor are perfect compliments

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1. Suppose your firm produces according to a function in which capital and labor are perfect compliments. The wage rate is currently $120 per day and the daily capital cost is $100. If the wage rate falls to $100, does the substitution effect dominate the scale effect and ensure that more capital is used? Explain and justify your answer.

2. How is the own-wage elasticity of labor demand for unskilled workers affected by the elasticity of supply of other factors of production (such as skilled labor and capital equipment)? Explain.

Reference no: EM13996760

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