Question: A firm has the production function Q = LK. For this production function, MPL = K and MPK = L. The firm initially faces input

A firm has the production function Q = LK. For this production function, MPL = K and MPK = L. The firm initially faces input prices w = $1 and r = $1 and is required to produce Q = 100 units. Later the price of labor w goes up to $4. Find the optimal input combinations for each set of prices and use these to calculate the firm's price elasticity of demand for labor over this range of prices.

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Using the tangency condition initially Implying that K L Since KL 100 we get K L 1... View full answer

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