2-6 chapter 3
Labor Supply long term is a vertical line
Each firm hires labor up to the point where MPL= W/P
Same logic shows MPK= R/P
diminishing returns to capital: MPK as K
The MPK curve is the firm’s demand curve
for renting capital.
Firms maximize profits by choosing K
such that MPK = R/P.
α −α (1−α)Y α−1 1−α αY
MPL = (1−α)AK L = L MPK = α AK L = K