Profit maximizing level of labor demand and capital demand

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Reference no: EM131006568

A shop has the following production function: f(E,K) = 2E3/5 K1/7

The price of output is $20, the wage rate is $7, and the rental rate for capital is $5 per unit.

a. Find the short-run profit maximizing level of labor demand if capital is fixed at 30 units.

b. Find the long-run profit maximizing level of labor demand and capital demand.

c. If wages change to $9, which effect is stronger for capital, substitution or scale?

Reference no: EM131006568

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