Problem
1. Suppose the firm is hiring labor and capital and that the ratio of marginal products of the two inputs equals the ratio of input prices. Does this imply that the firm is maximizing profits? Why or why not?
2. Suppose the wage increases. Show that in the long run the firm will hire fewer workers. Decompose the employment change into substitution and scale effects.
3. What factors determine the elasticity of the industry's labor demand curve?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.