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6. {ID points} There are two ways to illustrate the comparative statics result that prot- maximizing input demand is negatively-sloped: {I} Use the notion of

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6. {ID points} There are two ways to illustrate the comparative statics result that prot- maximizing input demand is negatively-sloped: {I} Use the notion of pseudo prot function to illustrate that capital demand is negatively-sloped. {I} 1|Within the context of the two-stage prot maximization behavior, illustrate that when the rental rate increases, the rm will reduce the use of input due to the substitution effect and the output effect. (Hint: Use the isoquant map diagram to illustrate the two effects. You can nd the analogy in the discussion of negatively-sloped Marshallian demand curve]

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