Suppose that a representative, perfectly competitive firm in the market has production function , where denotes capital and denotes labor. The price of the firm's product is denoted by p. Let w and r denote price of L and K, respectively. Suppose the capital is fixed at some level . What is the firm's choice of labor as a function of factor prices, product price and fixed capital?
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Suppose that a representative, perfectly competitive firm in the market has production function F(K, L) = K^(1/2)L^(1/2), where K denotes capital and L denotes labor. The price of the firm's product is denoted by p. Let w and r denote price of L and K, respectively. Suppose the capital is fixed at some level K̅. What is the firm's choice of labor as a function of factor prices, product price and fixed capital? (A) L = (1/4)(p²/w²)(K̅) (B) L = p² / w² (C) L = pK̅/w (D) None of the above
Also written as: Suppose that a representative, perfectly competitive firm in the market has production function F(K, L) = K^(1/2)L^(1/2), where K denotes capital and L denotes labor. The price of the firm's product is denoted by p. Let w and r denote price of L and K, respectively. Suppose the capital is fixed at some level K_bar. What is the firm's choice of labor as a function of factor prices, product price and fixed capital?
Factor markets and income distribution has come up 55 times in 6 exams since 2006.
This question is on Derived demand and marginal revenue product, part of Factor markets and income distribution in Microeconomics.
Why firms demand inputs: the value of what the last unit adds to output or revenue.
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Question from the JNU SIS 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.