Assume That a Firm Has a Production Function Y =

question 77

Essay

Assume that a firm has a production function Y = 1,000L^1/2,where Y is output and L is labour.Labour demand is L^d = 250,000(P/W)² and labour supply is L^s = 31,250(W/P).Initially,there is an equilibrium in which output is 250,000,employment is 62,500,the nominal wage is 20,and the price level is 10.Demand for output is 250,000 at the given price,so all output is sold.Suddenly,demand at the given price drops to 200,000,but the firm does not lower its price.It lowers output and lays off workers.a.Assuming that the firm cannot produce for inventory,how much will the firm want to produce?
b.Assuming output equals the amount given under part a,what employment force will the firms want to hire?
c.If the firm continues to pay the same nominal and real wage,how much more labour will workers wish to supply than the firm will want to hire?

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Definitions:

Recording Equipment

Devices or systems used for capturing audio, visual, or digital data, often used in entertainment, surveillance, and record-keeping.

Cash Received

The amount of money a company collects from its various business activities, including sales, financing, and investments.

Settlement Date

The date on which a trade is finalized or settled, with the transfer of securities and money between the buyer and seller.

Invoice Price

The price indicated on an invoice, representing the amount that the buyer agrees to pay the seller.