Production function with perfect substitutes
Having a little trouble setting this problem up. Would appreciate a detailed set up and solution.
A production function has 2 inputs - labor and capital. Both are perfect substitutes. Existing technology permits 1 machine to do the work of 3 workers. The firm wants to produce 100 units of output. Suppose the price of capital is $700 per machine per week. What combination of inputs will the firm use if each worker is paid $300 per week? What combination of inputs will the firm use if each worker is paid $225 per week? What is the elasticity of labor demand as the wage falls from $300 to $225?
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