For a Cobb-Douglas production function, how does the expansion path change if the wage stays the same while the rental rate of capital decreases? (Hint See Appendix 7C.) Assuming labor is measured on the x-axis and capital is measured on the y-axis, if the wage stays the same and the rental rate of capital decreases, then the firm will OA. use less labor and more capital and the slope of the expansion path will decrease OB. use less labor and less capital and the slope of the expansion path will remain the same. OC. use more labor and less capital and the slope of the expansion path will decrease D. use less labor and more capital and the slope of the expansion path will increase. OE. use less labor and less capital and the slope of the expansion path will increase
For a Cobb-Douglas production function, how does the expansion path change if the wage stays the same while the rental rate of capital decreases? (Hint See Appendix 7C.) Assuming labor is measured on the x-axis and capital is measured on the y-axis, if the wage stays the same and the rental rate of capital decreases, then the firm will OA. use less labor and more capital and the slope of the expansion path will decrease OB. use less labor and less capital and the slope of the expansion path will remain the same. OC. use more labor and less capital and the slope of the expansion path will decrease D. use less labor and more capital and the slope of the expansion path will increase. OE. use less labor and less capital and the slope of the expansion path will increase
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.3P
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Transcribed Image Text:For a Cobb-Douglas production function, how does the expansion path change if the wage stays the same while the rental rate of capital decreases? (Hint See Appendix 7C)
Assuming labor is measured on the x-axis and capital is measured on the y-axis, if the wage stays the same and the rental rate of capital decreases, then the firm will
OA. use less labor and more capital and the slope of the expansion path will decrease
OB. use less labor and less capital and the slope of the expansion path will remain the same.
OC. use more labor and less capital and the slope of the expansion path will decrease
D. use less labor and more capital and the slope of the expansion path will increase.
OE. use less labor and less capital and the slope of the expansion path will increase
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