View the step-by-step solution to:

# Assume that a firm has a production function Y = 1,000L 1/2, where Y is output and L is labour. Labour demand is L d = 250,000(P/W) 2 and labour...

Assume that a firm has a production function Y = 1,000L
1/2, where Y is output and L
is labour. Labour demand is L
d
= 250,000(P/W)
2
and labour supply is L
s
=
31,250(W/P). Initially, there is an equilibrium in which output is 250,000,
employment is 62,500, the nominal wage is 20, and the price level is 10. Demand for
output is 250,000 at the given price, so all output is sold. Suddenly, demand at the
given price drops to 200,000, but the firm does not lower its price. It lowers output
and lays off workers.

A) Assuming that the firm cannot produce for inventory, how much will the firm
want to produce?
B) Assuming output equals the amount given under part a, what employment
force will the firms want to hire?
C) If the firm continues to pay the same nominal and real wage, how much more
labour will workers wish to supply than the firm will want to hire?

Sign up to view the entire interaction

Let me explain the... View the full answer

A) Assuming that the firm cannot produce for inventory, how much will the firm want to
produce?
B) Assuming output equals the amount given under part a, what employment force will the
firms want to...

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents