The wage for workers in a competitive market is initially $10 and rent, the cost of capital

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The wage for workers in a competitive market is initially $10 and rent, the cost of capital (also rented in a competitive market), is initially $5. Now suppose that wages decrease to $8 and rent decreases to $2.

a) Describe how the scale effect changes a firm's use of labor and capital.

b) Describe how the substitution effect changes a firm's use of labor and capital.

c) Overall will a firm hire more or fewer workers? Will a firm rent more or less capital?

d) Will a firm change its production technology has given the changes in w and r?

Related Book For answer-question

Principles of economics

ISBN: 978-0538453042

6th Edition

Authors: N. Gregory Mankiw

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Posted Date: Jan 22, 2020 06:36 AM

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The wage for workers in a competitive market is initially $10 and rent, the cost of capital

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a This directly affects the cost of the product when the cost of both input variabl... View the full answer

Principles of economics

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