Labour Demand Flashcards
Outline: MPe
Change in q resulting from hiring an additional worker, holding capital held constant, +ve
When is the marginal curve line above average line?
When the average curve is rising (and visa versa)
When does MP curve intersect AP curve
At its maximum
What is main characteristic of short run?
Firm can’t change capital
Outline: VMPE
P x MPe
Value marginal product of Labour
Outline: VAPL
P x APe
What level of E does firm choose?
Where VMPE=W
Don’t hire an extra worker at this point as cost > value added
What does the SR demand curve for labour show?
How firm reacts to wage changes holding cap constant
What is the industry demand curve NOT?
A horizontal summation of all firm’s demand curves
What do isoquants show?
Possible combinations of lab and cap that produce the same output
What does slope of isoquant represent?v
MRTS (convex to origin, therefore decreasing MRTS)
Outline: scale effect
Firm takes advantage of the lower price of labour by expanding production
Outline: substitution effect
Firm takes advantage of lower price of labour by reaaranging mix of inputs, even f holding output constant
