Answer to Question #260673 in Microeconomics for Hashtag

Question

 Show that the quantity of labor(L) and capital(K) that a firm demand decreases with a factor’s own factor price (w for labor and r for capital) and increases with the output price (P) when the production function is a Cobb-Douglas of the form 𝐪 = 𝐀𝐋𝛒𝐊𝛗

Answer 1

$\Alpha$ stands for the mechanism used in processing .If $\Alpha$ is high, the output level made by any union of output is likewise high.

The Cobb Douglas function gives a homogenous function and the level of homogeneity is obtained by: $P$ and $w$.

As per the given equation, when $L$ and $K$ by the factor of $t$,$q$ will reduces by the factor $t$^p+w.

A reduction in the factor prices of labor and capital will lead to a higher demand by the firm. Also, when $q$ reduces by the factor $t$^p+w, the firm's demand for the input factors also reduces by the factor $t$^p+w.