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Question: 6 suppose the hourly wage is 40 the price of...

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6. Suppose the hourly wage is $40, the price of each unit of capital is $50, and the price of output is $100 per unit. Assume that the firm cannot affect any of these prices. The production function of the firm is so that the marginal product of labor is MPE 2E a. If the current capital stock is fixed at 1,600 units, how many hours of labor should the firm hire in the short run (i.e., what should E be)? How much profit will the firm earn (hint: remember that profit is just pricexoutput - wagexE -price of capital«K)? (3 points total 2 for the value of E and 1 for the profit).
Now lets think about the long run, in which the firm can freely choose both labor and capital. Based on the production function, the marginal product of capital can be written as b. VE If the firm is maximizing profits, what must the ratio of MPE to MP be? What must the ratio of E to K be? (2 points)
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