Assignment:
Labor Demand
Consider a firm in a competitive industry with a production technology:
Q = L1/2 + K1/2
The firm faces competitive output and factor markets, with output price P and the unit price of labor w and that of capital r with total costs of:
C = wL + rK.
The market wage rate (w) increases. Predict the impact on the number of workers employed? Be specific. Show your work.