Flashcards
Labour Demand
Cards in this deck (27)
- 1What does the production function do?Describes the technology used to produce goods and services
Relationship between inputs (labour) and output - 2List the 3 production function assumptions1. 2 factors of production: Capital and Labour Hours, q = f(K, N)
2. 1 person on an 8 hour shift is equilivant to 2 workers on 4 hour shifts
3. workers are homogeneous - 3What is the marginal product of labour? How is it calculated?The change in output when an additional worker is hired holding all other inputs constant
MPn = ∂q/∂N - 4What is the law of diminshing marginal returns?The marginal product of labour eventually declines
- 5What is the average product of labour? How is it calculated?The amount of output produced by a typical worker
AvPL = q/N - 6How is profit calculated?π = pq - wN - rK
- 7What is the difference between short and long run production?In the short run capital is fixed
- 8What is the value marginal product? Why is it used?marginal product x price
Firms are more interest in the value of the output they produce rather than the quantity - 9What is the value average product?The average value of output per worker
- 10What are the VMPn and VAPn curves?blown up versions of the productivity curves
- 11When are profits maximised? Provide the mathematical proofVMPn = w
∂π/∂N = p(∂q/∂N) - w = 0
p(∂q/∂N) = MPn = w - 12What occurs when w > VMPn?employing an additional worker reduces profits
- 13What occurs when w < VMPn?the cost of an additional worker is lower than the value they are adding
- 14Why are diminshing returns required?The firm would expand indefinitely otherwise
Focus on the downwards sloping part of the VMPn curve - 15What does the labour demand curve do?Depicts how employment changes as wages increase
Downwards sloping - 16What happens when w > VAPn?The firm is unprofitable and leaves the market
- 17What happens to the labour demand curve if prices increase?VMPn increases so the curve shifts right
For a given wage the firm would employ more people as it is more profitable - 18What is the firm's long run employment decision based off of?Cost minimisation
- 19What is an isoquant?Describes the combinations of capital and labour that produce the same level of output
- 20What are the properties of an isoquant?1. Downwards sloping
2. Non-intersecting
3. Higher isoquants = higher output
4. convex to the origin: diminishing MRS_N, K - 21What is the slope of an isoquant?Marginal rate of technical substitution: the rate at which inputs can be substituted while keeping output constant
- MPn/MPk - 22What is an isocost? Give the equationAll the combinations of capital and labour at a given input cost
c = wN + rK
L = c/r - (w/r)N - 23What happens to the isocost as costs increase?Shifts right
- 24At which point are costs minimised?MPn/MPk = w/r
Tangency between isoquant and isocost - 25Profit maximisation hires labour and capital up to which point?w = p x MPn
r = p x MPk
There is one level of employment that satisfies both - 26What happens when wage decreases?The isocost becomes flatter (- w/r) = can afford more bundles as more purchasing power
Total costs likely to change - 27Compare labour demand elasticity in the short and long runSR and LR elasticity formulas are the same
%ΔN/%Δw : more negative in the long run as can change between inputs as well as scale
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- Year 2 ECN21005 - Labour Economics Flashcards on Labour Demand, created by Imogen Donoghue on 19/01/2023.
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- Imogen Donoghue
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