150A HW 2 sol

150A HW 2 sol - Economics 150A Labor Economics Assignment 2...

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Unformatted text preview: Economics 150A Labor Economics Assignment 2 Spring 2011 Due date: Wed, June 1 at the beginning of class. Follow the homework guidelines as posted on the webpage (see http://econ.ucsb.edu/~benelli/homework_guidelines.htm). 1. Graphically show the long-run demand for labor if the price of capital increases. 2. A firm uses 1 capital for every 8 workers to produce 1 output. The price of output is $75, the wage rate is $6, and the rental rate for capital is $2 per unit. Assume capital is not a fixed cost. a. What is the profit maximizing level of labor demand if K=5? b. What is the short-run quantity produced? c. What is the profit maximizing level of labor demand if Q=25? d. (hard) What is the long-run quantity produced? Dont assume Q=25. 3. A new shop has opened and has the following production function: Q=2E 1/3 K 1/3 The price of output is $5, the wage rate is $6, and the rental rate for capital is $2 per unit. a. Find the short-run profit maximizing level of labor demand if capital is fixed at 3 units. b. Find the short-run the elasticity (show your math). c. Find the long-run profit maximizing level of labor demand and capital demand. d. Find the long-run the elasticity (show your math). e. If wages change to $10, which effect is stronger for capital, substitution or scale? 4. A new shop has opened and has the following production function: Q=2E 2/3 K 3/4 The price of output is $5, the wage rate is $6, and the rental rate for capital is $2 per unit....
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150A HW 2 sol - Economics 150A Labor Economics Assignment 2...

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