Consider a firm with the additive production function we discussed in class: f(K, L) = 2√...

Consider a firm with the additive production function we discussed in class: f(K, L) = 2√ L + 2√ K.

(a) Derive the firm’s long run demand curve for labor, as well as the firm’s long run demand curve for capital.

(b) Notice that the firm’s long run labor and capital demand curves do not exhibit any substitution effects. That is, if the price of labor increases, the firm’s use of capital does not change. Why do you think this is the case?

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Expert Solution

Rahul Sunny answered 1 year ago

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