homework_2_labor_demand - UniversityofCalifornia,Davis...

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University of California, Davis Dr. Janine L.F. Wilson Department of Economics Fall 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 price of capital is $1,000/week.
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This note was uploaded on 12/24/2009 for the course ECON 151A taught by Professor Miller during the Fall '06 term at UC Davis.

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homework_2_labor_demand - UniversityofCalifornia,Davis...

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