Jess owns a firm that uses labour (L) and capital (C) to sell widgets (X), according to the following production function:X = F(L,C) = ln(L) + ln(C)Jesse buys her factors and sells her output in perfectly competitive markets. The market prices for L, C and W are a, r and p, respectively. What is the firms demand functions for labour and capital. Say the central bank decides to increase interest rates, causing ? to go up. What effect will this have on the firm’s use of L and C? What effect will it have on output (X) and profits?

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Answered: Jess owns a firm that uses labour (L)…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter25: The Supply Of And Demand For Productive Resources

Section: Chapter Questions

Problem 5CQ

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Jess owns a firm that uses labour (L) and capital (C) to sell widgets (X), according to the following production function:

X = F(L,C) = ln(L) + ln(C)

Jesse buys her factors and sells her output in perfectly competitive markets. The market prices for L, C and W are a, r and p, respectively.

What is the firms demand functions for labour and capital.
Say the central bank decides to increase interest rates, causing ? to go up. What effect will this have on the firm’s use of L and C? What effect will it have on output (X) and profits?

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