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Determination of output and substitution effects

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Use the firm's isoquant-isocost diagram and the firm's marginal cost curve to explain and illustrate the output and substitution effects of a decrease in the price of labor.  Use your results to prove that the firm's long-run demand curve for labor must slope downward.  What will happen to the amount of capital employed by the firm when the price of labor decreases?  Use output and substitution effects to explain the change in the amount of capital employed.

Reference no: EM1313404

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