Scale effect change firms employment and capital stock

Assignment Help Business Economics

Reference no: EM13839393

Consider a firm for which production depends on two normal inputs, labor and capital, that are not perfect complements. Initially the firm faces market prices of w = 10 and r = 8, for labor and capital. These prices then shift to

w = 7 and r = 7.

a) In which direction will the substitution effect change the firm's employment and capital stock?

b) In which direction will the scale effect change the firm's employment and capital stock?

c) Can we say conclusively whether the firm will use more or less labor? More or less capital?

Reference no: EM13839393

Questions Cloud

According to the bureau of labor statistics : According to the Bureau of Labor Statistics, the distribution of consumer expenditures. If the negative income tax rate is set at 50 percent and the income floor is set at $5,000, a family that earns $3,000 would have a total income (including the in..

Marginal rate of product substitution is the rate : The Marginal Rate of Product Substitution (MRPS) is the rate that one output must be decreased as production of the other output is increased. The most common form of MRPS is?

Buying and selling of human organs is illegal : In the USA buying and selling of human organs is illegal. Those who need organs cannot buy organs from the market and those who donate organs cannot sell their organs. In your diagram show the effect of this policy change. Will this policy increase t..

Cause a shift in the production possibilities curve : Identify the two events that can cause a shift in the Production Possibilities curve.

Scale effect change firms employment and capital stock : Consider a firm for which production depends on two normal inputs, labor and capital, that are not perfect complements. Initially the firm faces market prices of w = 10 and r = 8, for labor and capital. In which direction will the substitution effect..

About use of money-medium of exchange-store of value : Your article shows money performing (or failing to perform) at least one of the following functions: (a) medium of exchange, (b) store of value, or (c) standard of value. Which one of those functions does it show? The event may have occurred in the p..

Dangers of high debt to gdp ratio and growing budget deficit : Two important policy goals of the government and the Fed are to keep unemployment and inflation low, while at the same time making sure that GDP is increasing at an average of 3% per year. Assume that the country is in a budget deficit and carrying a..

Identify the element of moral judgment : From your personal experience, discuss a situation you have faced that would require one of the six elements of moral judgment. Identify the element of moral judgment you chose and justify your response.

User Account

All Pages