Problem
Suppose there are two inputs in the production function-labor and capital-and that these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three persons. The firm wants to produce 1 00 units of output. Suppose now that the price of capital is $750 per machine per week and that the weekly salary of each worker is $300. Which combination of inputs should the firm use? Suppose that a worker's weekly salary is $225. Which input combination should the firm then use? What is the elasticity of labor demand as the wage falls from $300 to $225?