12. y = A/(k,n) is the firn\'s real revenue, while wn is the firm\'s variable co

Question

12. y = A/(k,n) is the firn's real revenue, while wn is the firm's variable cost function. The optimality point is given by... (Figure 4) a. Z, where MZ is the marginal product of labor and MB is the real employment cost. b. B, where MZ is the marginal product of labor and MB is the real employment cost c. Z, where MZ is the real revenue and MB is the real employment cost d. B, where MZ is the real revenue and MB is the real employment cost 13. yAf (k, n) is the firm's real revenue, while wn is the firm's labor cost function. If capital depreciation increases, then in Figure 4 a. the labor cost line shifts up

Explanation / Answer

12. (c) Optimality is given at point Z where MZ is the real revenue and MB is the real employment cost. At point Z, slope of the real revenue curve, i.e marginal real revenue is equal to the marginal employmwnt cost, w. Therefore, point z is optimal.

13. (d) If capital depreciation increases, then the production surve shifts down. This is because due to a higher depreciation, firms will have less capital to work with. As k falls, production falls.

14. (a) When capital depreciation decreases, capital demand shifts up.

Capital demande only changes when there is a change in the price of capital. Other factors which affect the quantity of capital shift the capital demand. In this case, because depreciation decreases, firms find it profitable to use more capital. Thus, the capital demand shifts upward.

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