Suppose a beverage company is profit-maximising. It has one factor of production, which is the amount of labour (l) it hires. For each hour of labour, the firm pays a wage 'w'. The production function is given by f(l) = l^1/2. (Assume that the price is equal to 1). a. Suppose that in equilibrium, the wage rate is fixed at w = 7. Solve for the firm’s optimal choice of how much labour to hire. b. Imagine the government votes to increase the minimum wage to w= 10. What happens to employment in the firm? c. Suppose the firm instead chooses to minimise the cost of producing a specific amount of q. Explain how this helps the firm maximise profits.

Suppose a beverage company is profit-maximising. It has one factor of production, which is the amount of labour (l) it hires. For each hour of labour, the firm pays a wage 'w'. The production function is given by f(l) = l^1/2. (Assume that the price is equal to 1). a. Suppose that in equilibrium, the wage rate is fixed at w = 7. Solve for the firm’s optimal choice of how much labour to hire. b. Imagine the government votes to increase the minimum wage to w= 10. What happens to employment in the firm? c. Suppose the firm instead chooses to minimise the cost of producing a specific amount of q. Explain how this helps the firm maximise profits.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter7: Proudction Costs

Section: Chapter Questions

Problem 3SQ

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