3a. Explain why the price of capital r doesn't influence short-run labor demand but does influence long-run labor demand.

3b. If Ethiopia and the United States have a common technology, then Ethiopia's production is more labor-intensive because the wage-rental ratio w/r is lower in Ethiopia. Alternatively, suppose the marginal products of labor and capital are 10 times higher in the United States at every mix of inputs. How does the difference in technologies impact the capital-labor ratio K/L in the two countries?

3c. At my local KFC, the hourly wage is $9 per worker. The franchise employs 15 workers per hour, and the marginal product of labor is 3 buckets of chicken per hour. The price of a bucket of fried chicken, which we pretend is the only thing KFC sells, is $3.50. Is the franchise maximizing profit? If not, would it increase profit by employing more workers or fewer workers?

3d. Explain, in words, what the elasticity of labor demand means.

3e How does the amount of unemployment created by an increase in the minimum wage depend on the elasticity of labor demand? (HINT: Remember that, intuitively, the elasticity of labor demand means the responsiveness to employment when you change the wage. If labor demand is very elastic, the curve is flatter.)

3f. In the long run, if we increase the price of capital, it will generate a substitution, a scale effect, or both. Which does it generate? Describe the effect in this context.

3g. What effect does a higher wage have on isoquant curves, isocost lines, the marginal cost curve, and the firm supply curve?

3h. Name 2 factors that can make market demand for labor more elastic in the long run.