Question
Bicycle Helmet Testing Services requires capital (a hammer) and labour to be used in fixed proportions (one labourer per hammer per day of testing). Assume
Bicycle Helmet Testing Services requires capital (a hammer) and labour to be used in fixed proportions (one labourer per hammer per day of testing). Assume also that it takes one day of steady bashing to fully test one helmet. Show the isoquant for a helmet-testing firm corresponding to 100 helmets tested. Show the cost-minimizing input combination if a day's labour costs $50, a hammer costs $10 to rent for one day, and the firm wishes to test 100 helmets. Depict the scale and substitution effects if the wage decreases to $25 per day. What does the short-run labour demand function look like? What does the long-run labour demand function look like?
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