Suppose that we have perfectly competitive input markets and output markets. Firm "Tomato Harvesting" produces canned...
Suppose that we have perfectly competitive input markets and output markets. Firm "Tomato Harvesting" produces canned tomatoes which it sells at $50. Suppose that initially the firm's production technology is given by:
f(k,l) = l(1/2)
Technological innovation has occurred, however. A new harvester has been invented by a professor. If the firm employs the tomato harvester, the new production technology is given by:
f(k.l) = k0.25l(1/2)
The rental rate of capital =$2
a) Suppose the market wage is $3. How much more or less labor will the firm use once it switches to the new production technology with the tomato harvester in the long run?
b) Suppose that there can only be one tomato harvester per farm. (Once adopted capital can be considered fixed)
The tomato harvester represents 1300 units of capital. At what hourly market wage will the firm switch from employing their labor only technology to adopting the tomato harvester (and employing their new production technology)?
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Suppose that we have perfectly competitive input markets and
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