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The next few questions are on elasticities. Suppose in the long run, wages increase from $20 to $30. (12 points) a) Quantity of labor decreased

The next few questions are on elasticities. Suppose in the long run, wages increase from $20 to $30. (12 points) a) Quantity of labor decreased by 15%. What is the labor demand elasticity? (4 points) b) Suppose in the long run, capital prices increase by 20% and quantity of labor increased by 15%. What is the cross elasticity of capital and labor? Is it a substitute or complement? (4 points) c) Using your answer from part (b), explain whether substitution or the scale effect dominates. What happens to the change in capital if the market wage decreases?

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