Suppose a perfectly competitive firm's production function is q = L⁰.²K⁰.⁶ and it takes the wage and price as given.Then the firm's long-run demand for labor as a function of K,w,and p is
A) p5((0.2/w)²(0.6/r)³).
B) p5((0.2/w)⁴(0.6/r)⁵).
C) p5((0.2/w)⁵(0.6/r)⁴).
D) p5((0.2/w)³(0.6/r)²).

Question

Quizplus · Accepted Answer

The firm's production function is q = L⁰.²K⁰.⁶. In a perfectly competitive market, the firm maximizes profit by setting the marginal product of labor (MPL) equal to the wage rate (w) and the marginal product of capital (MPK) equal to the rental rate (r). The long-run demand for labor can be derived using the cost-minimization condition and the given production function, leading to the expression in choice A.

Suppose a Perfectly Competitive Firm's Production Function Is Q =