11F_Quiz2_Sol

# 11F_Quiz2_Sol - Econ 204 Instructor J Li 1 QUIZ 2 ANSWERS...

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Unformatted text preview: Econ 204 Instructor: J. Li 1 QUIZ 2 ANSWERS, FALL 2011 Given: production function: Â¡ Â¢Â£Â¤Â¥ Â¦Â§ Â¡ Â¤ Â¨Â©Âª Â¦ Â«Â©Âª (a) Find: the labour demand function L D = F ( W / P , K ). The demand for labour is determined by the amount of labour that a profit- maximizing firm wants to hire at a given real wage. The profit-maximizing condition is that firm hires labour until the marginal product of labour, MPL , equals the real wage, Â¬Â­Â¦ Â¡ Â®Â©Â­Â¯ . +0.25 The MPL is found by partially differentiating the production function with respect to (w.r.t.) labour, Â¬Â­Â¦ Â¡ Â°Â± Â°Â² Â¡ Â³Â£Â¤ Â´ Âµ Â¦ Â¶ Âµ Â§Â©Â³Â¦ Â¡ Â« Âª Â¤ Â´ Âµ Â¦ Â· Â´ Âµ +0.25 In order to solve for labour demand, we set the MPL equal to the real wage and solve for L : Â« Âª Â¤ Â´ Âµ Â¦ Â· Â´ Âµ Â¡ Â¸ Â¹ +0.25 Â¦ Âº Â¡ Â¢ Â» Â¸ Â¹ Â¥ Â¤Â¼ Â¡ Â½ Â«Â¾ Â¤Â£ Â¸ Â¹ Â§ Â·Âª Â¿ +0.25 Notice that this expression has the intuitively desirable feature that an increase in the real wage reduces the demand for labour....
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11F_Quiz2_Sol - Econ 204 Instructor J Li 1 QUIZ 2 ANSWERS...

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