homework_2_labor_demand - UniversityofCalifornia,Davis...

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University of California, Davis Dr. Janine L.F. Wilson Department of Economics Summer Session II 2009 Economics 151a Homework 2  Labor Demand 1. Suppose Angelic Enterprises produces angel figurines and faces wages in the labor  market of $10 per hour and a rental rate of capital of $20 per hour.  a. Draw Angelic Enterprise’s isocost line below if they would like to spend $10,000  this month on their total inputs.  b. Sculpting each figurine requires exactly 2 units of capital and one worker.  The  worker cannot do anything without the 2 units of capital and the two units of  capital are useless without the worker (they are perfect compliments).  Draw  some examples of the isoquants faced by Angelic Enterprises.  What are the  levels of employment and capital that the firm will choose given the isocost line  above?  c. If there were a decline in wages from $10 to $7 describe in detailed words (not  numerically) the substitution effect and the scale effect on employment and  capital for Angelic Enterprises.  2. Suppose there are two inputs in the production function of lace, labor and capital, and  these two inputs are perfect substitutes.  The existing technology permits 1 machine to  do the work of 4 workers.  The firm wants to produce 100 bolts of lace.  Suppose the 
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This note was uploaded on 11/02/2009 for the course ECON 151A taught by Professor Miller during the Summer '06 term at UC Davis.

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homework_2_labor_demand - UniversityofCalifornia,Davis...

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