(This is all one question): A firm produces 400 units of output per week and this...

(This is all one question):

A firm produces 400 units of output per week and this firms faced with both input and output competitive markets. This produces a revenue of $20,000 per week. The firm could use capital technology (K1) to produce output together with labor in which case each worker would need 2hours to produce 1 unit of output per unit of K1. The firm could use capital technology (K2) in which case the worker would be able to produce 1 unit of output in 30minutes. Each hour of labor time costs $5 and due to the government regulation labor can only work 8 hours per day, 5 days per week.

a. How many workers and units of capital will the firm hire if they use K1 type of capital?

b. How many workers and units of capital will the firm hire if they use K2 type of capital?

c. Suppose the weekly rental cost of capital K1 for each unit of capital is $250 and for each K2 unit is $1,800. What capital will the firm rent? How many workers will the firm employ? How much profit will the firm earn?

d. Suppose the government imposes a 20 percent payroll tax (paid by employers) on all labor and offers a 20 percent subsidy on the rental cost of capital. What equipment will the firm rent? How many workers will the firm employ? How much profit will the firm earn?

Expert Solution

Rahul Sunny answered 2 years ago

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