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# Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology...

Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three persons. The firm wants to produce 100 units of output. Suppose the price of capital is \$750 per machine per week. What combination of inputs will the firms use if the weekly salary of each worker is \$300? What combination will they use if the weekly salary of each worker is \$225? What is the elasticity of labor demand as the wage falls from \$300 to \$225?

Dear student Please find the solution attached. If you need... View the full answer

It is said that the two inputs are perfect substitutes to each other. Therefore the MRTS is constant.
The production function is Q = K + L
Now, it is given that K = L/3
Or, 4K = 100
Therefore K =...

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