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Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits 1 machine to do the work of 3 workers. The firm wants to produce 100 units of output. Suppose the price of capital is $750 per machine per week. What combination of inputs will the firm use if the weekly salary of each worker is $300? What combination of inputs will the firm use if the weekly salary of each worker is $225? What is the elasticity of labor demand as the wage falls from $300 to $225?

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

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Related questions

Suppose there are two inputs in the production function, labor, and capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three workers. The firm wants to produce 100 units of output. Suppose the price of capital is $750 per machine per week.

a) What combination of inputs will the firm use if the weekly salary of each worker is $300?

b) What combination of inputs will the firm use if the weekly salary of each worker is $225?

c) What is the elasticity of labor demand as the wage falls from $300 to $225?

Ā 

A monopsonist faces a labor supply curve given by LS =300 + 0.01w, where w is the annual salary.

a. What is the lowest salary the firm can pay yet still induce one worker to want to work for the firm? What is the lowest salary the firm must pay to induce two workers to work for the firm?

b. What is the marginal cost to the firm of adding a second worker given that it must pay all employees the same wage? Is this greater than, less than, or equal to the wage paid to each of the two workers?

c. In general, the marginal cost of hiring additional labor for this firm is given by MW C = 29, 900 + 200L. If the firm's labor demand curve is given by LD = 398 - 0.01w, what is the profit-maximizing number of workers the monopsonist should hire? What is the salary the workers will be paid?

A monopsonist faces a labor supply curve given by LS = 300 + 0.01w, where w is the annual salary.

a. What is the lowest salary the firm can pay yet still induce one worker to want to work for the firm? What is the lowest salary the firm must pay to induce two workers to work for the firm?

b. What is the marginal cost to the firm of adding a second worker given that it must pay all employees the same wage? Is this greater than, less than, or equal to the wage paid to each of the two workers?

c. In general, the marginal cost of hiring additional labor for this firm is given by MW C = 29, 900 + 200L. If the firm's labor demand curve is given by LD = 398Ā  0.01w, what is the profit-maximizing number of workers the monopsonist should hire? What is the salary the workers will be paid?

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