Consider a firm operating in a competitive output market. The firm produces output (Y) with input factors labour (L) and

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Consider A Firm Operating In A Competitive Output Market The Firm Produces Output Y With Input Factors Labour L And 1 (251.99 KiB) Viewed 34 times

What is the answer of Question 1.2 What values does it have in panels (a) and (b) below (Chart 1 below)?
Remark: the value of the elasticity if substitution for the production function is 1/(1-0.5) = 2.
Consider a firm operating in a competitive output market. The firm produces output (Y) with input factors labour (L) and capital (K). Let w and r be the real prices of both inputs, respectively, so normalising the price of output to 1. The firm has a CES production function given by: Y = 5(0.3K0.5 + 0.7L0.5)2 1.2(6) - What is the definition of the elasticity of substitution? - What is the value of the elasticity of substitution for the production function listed above? - What values does it have in panels (a) and (b) below (Chart 1 below)? 1.3(8) Suppose the firm produces output Y = 500, and that wage w = 3 and rental rate r= 2. - What are the firm's (long-run) long run employment decision? And what are the associated profits? Capital Capital 100 9. Isoquant 9o Isoquant 5 200 Employment 20 Employment (a) Perfect Substitutes (b) Perfect Complements Chart 1. Isoquants for two values of the elasticity of substitution