Substitution effect change firm employment and capital stock

Reference no: EM1373822

Suppose a company where production depends on two inputs: labor and capital, with prices w and r, respectively. Initially, the company faces market values of w=6 and r=4. these prices then shift to w=4 and r=2.

[A] in which direction with 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: EM1373822

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