Suppose a firm follows the production function f(E,K) = E½K ½. The hourly wage of hiring one worker is $10 and the price of each unit of capital is $50. The price of output is constant at $100 per unit.
a. Write out the function for marginal product of labor (derived from production function)
b. What rule should the owner follow when deciding the number of workers to hire in order to maximize the firm’s profit?
c. If the current capital stock is fixed at 1,000 units, how much labor should the firm employ in the short run?
d. How much profit will the firm earn?
