XYZ Co operates in a competitive market. Its production function is q = L?K?. The exponents, ? and ?, are both less than one. The firm's capital is fixed, and it takes the wage and price as given
Derive the firm's short-run demand for labor as a function of K, w, and p. How does the firm react to an increase in the wage rate?
MPL = αLα-1Kβ. The firm sets w = p(αLα-1Kβ). Rearranging to solve for L yields
L = (w/pαKβ)1/(α-1).
Since a < 1, L increases when p and K increase, and decreases when w increases.
Economics
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Graphically, producer surplus is measured as the area
A. under the demand curve and below the actual price. B. above the supply curve and above the actual price. C. under the demand curve and above the actual price. D. above the supply curve and below the actual price.
Economics