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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. How much labour should the firm employ in the short run? ~ b. How much labour should the firm employ in the long run (Hint: MRS = - 2K/E)?
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