Labour Demand with Perfect Competition in the Labour Market and Perfect Competition in the

Output Market in Short Run.

You are the manager of a business that operates in perfectly competitive markets {both the

Labour Market and Output Market}.

The production function of the business is given by: Q = L^0.5 .

The price of the product is $100. The wage rate is $50.

a) Calculate the level of output and amount of labour hired by the firm.

b) Derive the demand for labour (Hint: solve for L in terms of w).

c) Calculate the elasticity of Labour Demand and interpret the result in WORDS.

d) Make diagrams for your solutions.