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Very struggled with (b). Is the conditional demand of a specific input equals to the expansion path? The question comes from a Practice Exam. Problem

Very struggled with (b). Is the conditional demand of a specific input equals to the expansion path?

The question comes from a Practice Exam.

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Problem 6: [10 marks] Recent evidence suggests that unskilled labour's share of total factor expenditure has been decreasing globally. In this problem you are required to examine one explanation for this trend. Suppose that a typical rm produces output ((1) using unskilled labour (LU), skilled labour (L3), and capital (K) according to the following long-run production function q=m+m+m where oz 2 1 is a constant. (a) [1.5 marks] Derive this rm's marginal product of unskilled labour, skilled labour and capital respectively. (b) [3.5 marks] Let this rm's target output be q = 10. Further, assume that the wage of unskilled labour is my 2 1, the wage of skilled labour is ws 2 2, and the rental rate of capital is r = 2. Use this information to solve for the rm's condi- tional demand for unskilled labour, skilled labour, and capital respectively. (0) [1.5 marks] Suppose that o = 1. Calculate this rm's total cost of producing q = 10. What fraction of this total cost of production is earned by unskilled labour? (d) [3.5 marks] Now suppose that oz 2 2. Repeat the calculations in (c). What has happened to unskilled labour's share of the rm's total cost? Can you provide some intuition for this change

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