Suppose a firm’s production function is given by q = min{3K,6L}, where K is capital and...
Suppose a firm’s production function is given by q = min{3K,6L}, where K is capital and L is labor. If the wage increases, what happens to the firm’s use of labor in production (relative to capital)? Explain.
Homework Answers
The production function is of the form q=min(aK,bL), tbis means it is perfect complement production function . The inputs K and L are used in fixed proportion.
Equilibrium condition is aK=bL
The cost minimizing level of K and L do not depend on wages and rent.
Therefore when wages increases, IT DOES NOT CHANGE the firm's use of labor in production.
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