5. Page 2 of 2 Elasticity A. Blue Chair Press publishes art books. The demand for art books published byBlue Chair Press is highly elastic. Labor is a significant input in the productionof art books. Show on a demand and supply graph for Blue Chair Press artbooks the effect of an increase in the wage rate. What can you conclude aboutthe elasticity of demand for labor? (4 points)B. Blue Chair Press uses a lot of labor when it edits and publishes texts. Its laborcosts are 80% of its total costs. Compare the elasticity of demand for labor inthis situation with the elasticity of labor demand if labor accounted for only20% of Blue Chair Press’s total costs. (4 points)C. Since Blue Chair Press requires very specific artistic skills from the labor ithires, there are few substitutes for the type of labor the firm requires. Howdoes this affect the elasticity of demand for labor? (2 points)D. True or False: The higher the elasticity of demand for the product, art books,the more inelastic is the demand for the resource, labor, that produces the artbooks. Explain your answer. (2 points)E. True or False: If the ratio of labor costs to total costs is low, then the elasticityof demand for labor is low and a given wage increase results in fewer laborerslosing jobs than if the elasticity of demand is higher. Explain your answer.(2 points)6. Marginal AnalysisA. Explain how marginal analysis is used to determine the least-cost combinationof labor and capital used to produce a given level of output. (2 points)B. Explain how marginal analysis is used to determine the profit-maximizingcombination of labor (L) and capital (K) used to produce a given level ofoutput. Give your answers in words and in an equation. (2 points)C. Is the least-cost combination or resources also the profit-maximizing level ofresources? Explain your answer. (3 points) ____________© Copyright 2002 Apex Learning, Inc. All rights reserved. This material is intended for the exclusive use ofregistered users only. No portion of these materials may be reproduced or redistributed in any form without theexpress written permission of Apex Learning, Inc.