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Suppose firms use skilled labor (H) and unskilled labor (L) to produce according to the following production function Q = min{H, 3/2L} where Q is

  1. Suppose firms use skilled labor (H) and unskilled labor (L) to produce according to the following production function

    Q = min{H, 3/2L}

    where Q is the output quantity. The supply curve of unskilled labor is given by L = WL 0.5. Skilled labor is supplied perfectly elastically at price WH = 1. Output market is competitive and output price is 2. Input markets are competitive as well. Which of the following statements is correct?

    (a) With the production technology characterized by the above production function, skilled labor and unskilled labor are perfect substitutes.(b) With the production technology characterized by the above production function, the marginal product of unskilled labor is always positive.(c) With the production technology characterized by the above production function, the marginal product of skilled labor is always positive.(d) Profit maximizing inputs choices are: H = 0, L = 2 4

(e).Profit maximizing inputs choices are: H = 1, L = 0.1 (f) Profit maximizing inputs choices are: H = 0.75, L = 0.5

(g) Profit maximizing inputs choices are: H = 1, L = 1.5 (h) Profit maximizing inputs choices are: H = 2, L = 3

(i) Profit maximizing inputs choices are: H = 10, L = 10 (j) None of the above is correct.

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