Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.7P
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Question
Transcribed Image Text:Q2 (c)
What are the scale and substitution effects for this firm? Calculate them, and show them on a
graph.
Transcribed Image Text:Q2 (a)
A firm operates in a perfectly competitive output market and a perfectly competitive input
market.
The production function for the firm is:
F(N, K) = NK
The price of labour is $10, and price capital $20.
If the firm needed to produce 100 units, how much capital and how much labour should they use
in the long-run?
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Q2 (b)
If the wage rate increased to $20, and the first now changes their production to 50 units of
output. How much labour should they use? How much capital?
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