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150a_hw2

150a_hw2 - Economics 150A Labor Economics Assignment 2...

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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? Don’t 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.

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