A competitive firm has a production function described as follows. “Weekly output is the minimum of the number of units of capital and the number of units of labor (L) employed per week.” Suppose that in the short run this firm must use 16 units of capital but can vary its amount of labor freely. Assume the firm does not pay any costs on capital.
a. Write down the production function as a function of labor L.
b. If the wage is w = $1 and the price of output is p = $4, how much labor will the firm demand in the short run?
c. What if w = $1 and p = $0.9?