Log in
Economics
1
answer
0
watching
98
views

2) The wage for workers in a competitive economy is initially $6 and rent, the cost of capital (also rented in a competitive market), is initially $8. Now suppose that wages increase to $8 and rents increase to $12.

a) Describe how the scale effect changes a firm's use of labor and capital.

b) Describe how the substitution effect changes a firm's use of labor and capital.

c) Overall, will a firm hire more or fewer workers? Will a firm rent more or less capital?

d) Will a firm change its production technology given the changes in w and r?

Watch
1
answer
0
watching
98
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Joshua Stredder
Joshua StredderLv10
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Consider a firm for which production depends on two normal inputs, labor and capital, that are not perfect complements. Initially the firm faces market prices of w = 10 and r = 8, for labor and capital. These prices then shift to
w = 7 and r = 7.

a) In which direction will the substitution effect change the firm's employment and capital stock?

b) In which direction will the scale effect change the firm's employment and capital stock?

c) Can we say conclusively whether the firm will use more or less labor? More or less capital?

Consider a firm for which production depends on two normal inputs, labor, and capital, that are not perfect complements. Initially, the firm faces market prices of w = 10 and r = 8, for labor and capital. These prices then shift to w=7 andr=7.

a) In which direction will the substitution effect change the firm's employment and capital stock?

b) In which direction will the scale effect change the firm's employment and capital stock?
c) Can we say conclusively whether the firm will use more or less labor? More or less capital?

Consider a firm for which production depends on two normal inputs, labour and capital, that are not perfect complements. Initially, the firm faces market prices of w = 10 and r = 8, for labour and capital. These prices then shift to w=7 andr=7.

a) In which direction will the substitution effect change the firm's employment and capital stock?

b) In which direction will the scale effect change the firm's employment and capital stock?

c) Can we say conclusively whether the firm will use more or less labour? More or less capital?

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in