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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 longrun 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 shortrun quantity produced? c. What is the profit maximizing level of labor demand if Q=25? d. (hard) What is the longrun 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 shortrun profit maximizing level of labor demand if capital is fixed at 3 units. b. Find the shortrun the elasticity (show your math). c. Find the longrun profit maximizing level of labor demand and capital demand. d. Find the longrun 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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This document was uploaded on 09/04/2011.
 Spring '09
 Economics

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