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Suppose the wage rate is $20 per hour and the rental rate of each unit of capital is $20. The price of output is constant
Suppose the wage rate is $20 per hour and the rental rate of each unit of capital is $20. The price of output is constant at $80 per unit. Initial capital level is 1 unit. The production function is f (KE) = K1/4E1/2 a. Find the substitution and scale effects and fill in the table below. Not just with the signs but the actual values of the substitution and scale effects! (Hint: the first step is to calculate the quantity of production after the wage decline)
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