A company has a production function Q = (K)0.5 + L. For this production function MP, = 1 and MPK = 0.5(K)-0.5. The firm faces w=$50 and r= $1. %3D Keeping r =1, the price of labor, w, must fall to less than $ in order for the firm to use a positive amount of capital to produce 10 units, or the output Q must increase to over units for the firm to use a positive amount of capital, at w=$50.
A company has a production function Q = (K)0.5 + L. For this production function MP, = 1 and MPK = 0.5(K)-0.5. The firm faces w=$50 and r= $1. %3D Keeping r =1, the price of labor, w, must fall to less than $ in order for the firm to use a positive amount of capital to produce 10 units, or the output Q must increase to over units for the firm to use a positive amount of capital, at w=$50.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.5P
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