Labor Economics 5th Edition by George Borjas

Exercise 4

Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three workers. The firm wants to produce 100 units of output. Suppose the price of capital is $750 per machine per week. What combination of inputs will the firm use if the weekly salary of each worker is $300 What combination of inputs will the firm use if the weekly salary of each worker is $225 What is the elasticity of labor demand as the wage falls from $300 to $225