Output and Substitution Effects Assignment | Homework For You
3. Draw the least cost choices of capital and labor for a firm experiencing a decrease in the wages of labor (i.e. the wage-rental rate decreases). Show the output and substitution effects and explain what this means. In your answer assume that the firm is operating in competitive output and input markets. Assume that, despite the wage rate reduction, the price of output remains unchanged. Be sure to label all the axis and curves.
4. Draw the profit-maximizing labor usage choice of a price-setting firm in the output market experiencing diminishing returns (the firm is assumed to be a price taker in the labor market). Draw the marginal revenue product and the average value product of labor curves as well as the prevailing wage rate. Be sure to label the curves and axis and explain what the graph means (in complete sentences). Get Economics homework help today