3. LABOR DEMAND, PART II A. What exactly is the interpretation of the term w/MPL?...

3. LABOR DEMAND, PART II

A. What exactly is the interpretation of the term w/MPL? Explain. (5 points)

B. What exactly is the interpretation of the term r/MPK? Explain (5 points)

C. In choosing its optimal combination of labor and capital, explain why a company must satisfy the condition w/MPL = r/MPK. (5 points)

D. Suppose “progress” makes capital less expensive. Is it necessarily the case that a profit-seeking company will now use more capital? Demonstrate and explain. (5 points)

E. Given your analysis in Part D above, is it necessarily the case that this profit-seeking company will now use less labor? Demonstrate and explain. (5 points)

F. Now explain why the following statement is true/false/uncertain. “If capital and labor are substitutes in production, then capital and labor must be gross substitutes.”

(5 points)

Expert Solution

Solution to first 4 sub parts provided ...

Rahul Sunny answered 2 years ago

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