Demonstrate the following scenarios with clearly and fully labeled graphs: 1. Starting from an initial optimal level of employment and output with well-behaved isoquants. Draw the effect of a decline in the price of labor (horizontal axis), where the substitution effect on capital is larger than the scale effect. Clearly highlight the expansion path in this case.

Demonstrate the following scenarios with clearly and fully labeled graphs: 1. Starting from an initial optimal level of employment and output with well-behaved isoquants. Draw the effect of a decline in the price of labor (horizontal axis), where the substitution effect on capital is larger than the scale effect. Clearly highlight the expansion path in this case.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter7: Production And Cost In The Firm

Section7.A: Appendix: A Closer Look At Production And Cost

Problem 1AQ

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Starting from an initial optimal level of employment and output with well-behaved isoquants. Draw the effect of a decline in the price of labor (horizontal axis), where the substitution effect on capital is larger than the scale effect. Clearly highlight the expansion path in this case
Starting from an initial optimal level of employment and output with well-behaved isoquants. Draw the effect of a decline in the price of labor (horizontal axis), where the substitution effect on capital is larger than the scale effect. Clearly highlight the expansion path in this case and label whats neccessary.
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The following are correct descriptions about the concept of Marginal Productivity of Labor (MPL), EXCEPT: Question 1 options: MPL measures the extra production generated by adding one extra unit of labor. MPL initially increases and eventually declines as more units of Labor are added. From the producer's perspective, The optimal level of labor is the one when MPL = Market Wage and MPL is still Increasing. If MPL increases for any given amount of labor, it will lead to a shift up of the Demand for Labor.
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Consider the case of a firm which produces q units of a single output using two inputs, labour (L) and capital (K). Suppose the marginal rate of substitution of labour in terms of capital is given by MRS = K1/6 / L Find the value of the derivative which can be informative about the shape of the firm's isoquant at the point where L =1.42 and K =17
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