A firm has the following production function: Y=AK0.5N0.5 a. After explaining what A represents, find the labour demand of this firm if A=2 and K=25. b. Suppose that the government decides to put a tax on revenues equal 10%. Find the new labour demand. What will be the effect of this tax on the equilibrium wage, assuming all firms have this production function? Use a graph to illustrate your answer. c. Suppose that a new technology allows the firm to use half of the worker and capital to produce the same quantity (that is A is now 4!). The government is concerned that now firms will fire a massive amount of their workforce and it decides to ban the new technology. Was it a correct fear? Show what would have happened. d. What would have been the impact of the new technology on the capital desired and investment of the firm? Explain.

A firm has the following production function: Y=AK0.5N0.5 a. After explaining what A represents, find the labour demand of this firm if A=2 and K=25. b. Suppose that the government decides to put a tax on revenues equal 10%. Find the new labour demand. What will be the effect of this tax on the equilibrium wage, assuming all firms have this production function? Use a graph to illustrate your answer. c. Suppose that a new technology allows the firm to use half of the worker and capital to produce the same quantity (that is A is now 4!). The government is concerned that now firms will fire a massive amount of their workforce and it decides to ban the new technology. Was it a correct fear? Show what would have happened. d. What would have been the impact of the new technology on the capital desired and investment of the firm? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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