1 Chapter 4 Labour Demand McGraw-Hill/Irwin Labor Economics, 4 th edition Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.
2 4-2 Introduction Firms hire workers because consumers want to purchase a variety of goods and services. Therefore, demand for workers is derived from the wants and desires of consumers (it is derived demand ). Central questions: How many workers are hired and what are they paid?
3 The Firm s Production Function The production function describes the technology that the firm uses to produce goods and services. Assume only two production factors: The firm s output is produced by any combination of capital (land, machines, etc.) and labour (employee hours hired by the firm; if working hours constant, also simply the number of workers hired). q=f(e,k) Note that labour is assumed to be homogenous (and so is capital). The marginal product of labour MP E is the change in output resulting from hiring an additional worker, holding constant the quantities of other inputs. The marginal product of capital MP K is the change in output resulting from a one unit increase in capital, holding constant the quantities of other inputs.
4 4-4 More on the Production Function Marginal products of labour and capital are positive, so as more units of each are hired, output increases. When firms hire more workers, total product rises. The slope of the total product curve is the marginal product of labour. Law of Diminishing Returns: Eventually, the marginal product of labour declines. - Average product of labour AP E : The amount of output produced by the typical worker, i.e. q/e.
5 Figure 4.1: The Total Product, the Marginal Product, and the Average Product Curves Average Product Output Total Product Curve Output Marginal Product Number of Workers Number of Workers The total product curve gives the relationship between output q and the number of workers hired by the firm E (holding capital fixed). The marginal product curve gives the output produced by each additional worker, and the average product curve gives the output per worker.
6 4-6 Marginal and Average Curves Note the following rule: The marginal curve lies above the average curve when the average curve is rising, and the marginal curve lies below he average curve when the average curve is falling. This implies that the marginal curve intersects the average curve at the point where the average curve peaks.
7 4-7 Profit Maximisation We assume the objective of the firm is to maximise profits. The profit function is: - Profits = pq we rk - Total Revenue = pq - Total Costs = (we + rk) In this chapter it is assumed that the firm is perfectly competitive, i.e. it cannot influence prices of output or inputs (they are assumed constant, irrespective of what the firm does) How much E and K should the firm hire?
8 4.2 The Employment Decision in the Short Run 4-8 Definition of short-run: K fixed. Value of Marginal Product (VMP) of labour is the marginal product of labour times the dollar value of the output: VMP E =p MP E This indicates the $ increase in revenue generated by an additional worker, holding capital constant. Value of Average Product (VAP) of labour is the dollar value of output per worker: VAP E =p AP E A profit-maximizing firm hires workers up to the point where VMP E =w (and VMP E is declining). This is the marginal productivity condition. At that point the marginal gain due to an additional worker is equal to the cost of the worker.
9 Figure 4.2: The Firm's Hiring Decision in the Short-Run VAP E VMP E A profit-maximizing firm hires workers up to the point where the wage rate equals the value of marginal product of labour. If the wage is $22, the firm hires eight workers Number of Workers
10 4-10 The Short-Run Labour Demand Curve The short-run demand curve for labour indicates what happens to the firm s employment as the wage changes, holding capital constant. The curve is downward sloping. It is the downward-sloping part of the VMP E curve below its intersection point with the VAP E curve.
11 4-11 Figure 4.3: Short-Run Demand Curve for Labour VMP E VMP E Number of Workers Because marginal product eventually declines, the short-run demand curve for labour is downward sloping. A drop in the wage from $22 to $18 increases the firm s employment. An increase in the price of the output (or an increase in worker productivity) shifts the value of marginal product curve upward (i.e. outward), and increases employment.
12 The Short-Run Labour Demand Curve for the Industry 4-12 We do not get the industry demand curve for labour by adding up individual firms labour demand curves horizontally. Reason: For each firm the output price is given (i.e. the firm cannot change it), but if all firms in an industy expand their output, the output price will be reduced, and so will be the VMP (=p MP E E ) of each firm, shifting each firm s labour demand curve left.
13 4-13 Figure 4.4: The Short-Run Labour Demand Curve for the Industry Wage Wage T D D T Employment Employment
14 4-14 The short-run elasticity of labour demand To measure the responsiveness of employment in an industry to changes in the wage rate, we can calculate the elasticity of labour demand: - The percentage change in employment divided by the percentage change in the wage, or σ SR E SR = Δ Δ w E w SR
15 An Alternative Interpretation of the Marginal Productivity Condition 4-15 More familiar profit-maximizing rule for perfectly competitive firms: Produce output up to the point where Marginal Cost (MC) equals output price p (i.e. Marginal Revenue MR). This is the same as the marginal productivity condition derived earlier: The cost of producing an extra unit of output equals: MC = w 1/MP E If we set this equal to P and re-arrange, we get the marginal productivity condition: w 1/MP E = p w = p MP E
16 4-16 Figure 4.5: The Firm's Output Decision Dollars p q * MC Output Price Output A profit-maximizing firm produces up to the point where the output price equals the marginal cost of production. This profitmaximizing condition is the same as the one requiring firms to hire workers up to the point where the wage equals the value of marginal product of labour.
17 4-17 Critique of Marginal Productivity Theory A common criticism is that the theory bears little relation to the way that employers make hiring decisions. Another criticism is that the assumptions of the theory are not very realistic. However, employers act as if they know the implications of marginal productivity theory (hence, they try to make profits and remain in business).
18 The Employment Decision in the Long Run In the long run, the firm maximizes profits by choosing how many workers to hire AND how much plant and equipment to invest in. An isoquant describes the possible combinations of labour and capital that produce the same level of output (the curve ISOlates the QUANTity of output). Isoquants - must be downward sloping - do not intersect - that are higher indicate more output - are convex to the origin - have a slope that is the negative of the ratio of the marginal products of labour and capital. The absolute value of this is called the marginal rate of technical substitution.
19 4-19 Isoquant Curves ΔK Capital X Y q 0 q 1 All capital-labour combinations that lie along a single isoquant produce the same level of output. The input combinations at points X and Y produce q 0 units of output. Input combinations that lie on higher isoquants produce more output. ΔE Employment
20 4-20 Isocost Lines The isocost line indicates the possible combinations of labour and capital the firm can hire given a specified budget. An isocost line indicates equally costly combinations of inputs (i.e. they indicate a particular value of total cost). Higher isocost lines indicate higher costs. The firm s costs are: C=wE + rk. Re-write so that this function can be drawn in K, E space: K = C r w r E
21 4-21 Isocost Lines C 1 /r C 0 /r Capital Isocost with Cost Outlay C 1 Isocost with Cost Outlay C 0 All capital-labour combinations that lie along a single isocost curve are equally costly. Capitallabour combinations that lie on a higher isocost curve are more costly. The slope of an isocost line equals the ratio of input prices (-w/r). C 0 /w C 1 /w Employment
22 4-22 Cost Minimization Profit maximization implies cost minimization. The firm chooses the least cost combination of capital and labour to achieve its profit-maximizing output level (determined by MC=p). This least cost choice is where the isocost line is tangent to the isoquant. At that point, the marginal rate of (technical) substitution equals the price ratio of capital to labour. MP MP E = K This condition can also be derived from value marginal product of an input equals its price, e.g. from w=p*mp E and r=p*mp K. w r
23 4-23 The Firm's Optimal Combination of Inputs (for a given level of output) Capital C 1 /r C 0 /r 175 A P B q 0 A firm minimises the costs of producing q 0 units of output by using the capital-labour combination at point P, where the isoquant is tangent to the isocost. All other capital-labour combinations (such as those given by points A and B) lie on a higher isocost curve. 100 Employment
24 Long Run Demand for Labour What happens to the firm s long-run demand for labour when the wage changes? If the wage rate drops, two effects take place that increase the firm s labour demand: - Firm takes advantage of the lower price of labour by expanding production (scale effect). - Firm takes advantage of the wage change by rearranging its mix of inputs (while holding output constant)(substitution effect). If labour is cheaper, the firm will increase its demand for labour. What happens to the demand for capital depends on the relative strength of scale (increased demand for capital) and substitution effects (reduced demand for capital).
25 4-25 Figure 4.9: The Impact of a Wage Reduction, Holding Constant (Unrealistically!) Initial Cost Outlay at C 0 Capital C 0 /r P 40 R Wage is w0 q 0 q 0 Wage is w 1 A wage reduction flattens the isocost curve. If the firm were to hold the initial cost outlay constant at C 0 dollars, the isocost would rotate around C 0 and the firm would move from point P to point R. A profit-maximizing firm, however, will not generally want to hold the cost outlay constant when the wage changes, i.e. Figure 4.9 is most likely wrong.
26 4-26 Figure 4.10: The Impact of a Wage Reduction on Output and Employment of a Profit-Maximising Firm Dollars Capital MC 0 MC 1 p P R Output Employment A wage cut reduces the marginal cost of production and encourages the firm to expand output (from producing 100 to 150 units). Scale effect. The firm moves from point P to point R, increasing the number of workers hired from 25 to 50.
27 4-27 Figure 4.11: The Long Run Demand Curve for Labour Dollars w 0 The long-run demand curve for labour gives the firm s employment at a given wage and is downward sloping. w 1 D LR Employment
28 4-28 Figure 4.12: Substitution and Scale Effects C 1 /r C 0 /r Capital D P Q R D A wage cut generates substitution and scale effects. The scale effect (the move from point P to point Q) encourages the firm to expand output, increasing the firm s employment. The substitution effect (from Q to R) encourages the firm to use a more labourintensive method of production, further increasing employment. Wage is w 1 Wage is w Employment
29 4-29 Long-run elasticity of labour demand In the long run, the firm can take full advantage of the economic opportunities introduced by a change in the wage. As a result, the long-run labour demand curve is more elastic ( flatter) than the short-run labour demand curve ( steeper ). See Figure Wide range of estimates. Consensus estimates: - Short-run elasticity between 0.4 and Long-run elasticity around 1.0.
30 The Elasticity of Substitution When two inputs can be substituted at a constant rate, the two inputs are called perfect substitutes. When an isoquant is right-angled, the inputs are perfect complements. The substitution effect is very large (infinite) when the two inputs are perfect substitutes. Depending on the slope of the budget line, only one of the inputs will be used in production! There is no substitution effect when the inputs are perfect complements (since both inputs are required for production). Input price changes do not alter the input mix. The curvature of the isoquant measures elasticity of substitution
31 Figure 4.14: Isoquants when Inputs are either Perfect Substitutes or Perfect Complements 4-31 Capital Capital 100 q 0 Isoquant 5 q 0 Isoquant 200 Employment 20 Employment Capital and labour are perfect substitutes if the isoquant is linear (in this example, two workers can always be substituted for one machine). The two inputs are perfect complements if the isoquant is right-angled. The firm then gets the same output when it hires 5 machines and 20 workers as when it hires 5 machines and 25 workers.
32 4-32 Elasticity Measurement The more curved the isoquant, the smaller the size of the substitution effect. To measure the curvature of the isoquant we use the elasticity of substitution. Intuitively, the elasticity of substitution is the percentage change in capital to labour (a ratio) given a percentage change in the price ratio (wages to real interest): Percentage change in (K/E) divided by percentage change in (w/r) It is a positive number. (w capital intensity ).
33 Application: Affirmative Action and Production Costs - The Importance of Empirical Evidence Whether affirmative action (the mandated hiring of certain types of workers, e.g. women, ethnic minorities) improves the profitability of a firm depends on whether or not the firm discriminated before the policy was introduced. - A) If the firm was discriminating, affirmative action can improve its profitability because discrimination will have shifted the hiring decision away from the cost minimization tangency point on the isoquant. Discrimination is not profitable. - B) If the firm was not discriminating but is forced to adopt affirmative action measures, its costs will increase and its profit will decline. In the extreme case, the firm might go bankrupt.
34 Figure 4.15a: Affirmative Action and the Costs of Production 4-34 Black Labour Q P White Labour q * The discriminatory firm chooses the input mix at point P, ignoring the cost-minimizing rule that the isoquant be tangent to the isocost. An affirmative action program can force the firm to move to point Q, resulting in more efficient production and lower costs (despite black labour being less productive, i.e. having lower wage, than white workers).
35 4-35 Figure 4.15b: Affirmative Action and the Costs of Production Black Labour Q A non-discriminating firm is at point P, hiring relatively more whites because of the shape of the isoquants. An affirmative action program increases this firm s costs. P White Labour q * Note that the way the isocost lines are drawn, black labour is more productive (has higher wage) than white labour.
36 Marshall s Rules of Derived Demand Marshall s famous four rules about factors that generate elastic industry labour demand curves. Labour demand in a particular industry is more elastic if: - Elasticity of substitution is greater. - Elasticity of demand for the firm s output is greater. - The greater labour s share in total costs of production. - But note the qualification mentioned in Note 12, p The greater the supply elasticity of other factors of production (such as capital).
37 Factor Demand with Many Inputs There are many different inputs (skilled and unskilled labour; old and new machines, natural resources etc.). They can all be incorporated into the production function. Cross-elasticity of factor demand: Percentage change in x i / percentage change in w j - i.e. responsiveness of demand for input i with respect to price of input j. - If the cross-elasticity is positive, the two inputs are said to be substitutes in production (if it is negative, they are complements). - Unskilled labour and capital usually found to be substitutes, skilled labour and capital found to be complements. The capital-skill complementarity hypothesis. Policy implications?
38 4-38 Figure 4.16: The Demand Curve for a Factor of Production is Affected by the Prices of Other Inputs Price of input i (a) Price of input i (b) D 0 D 1 D 0 D 1 Employment of input i Employment of input i The demand curve for input i shifts when the price of another input changes. (a) If the price of a substitutable input rises, the demand curve for input i shifts up. (b) If the price of a complement rises, the demand curve for input i shifts down.
39 Labour Market Equilibrium (more on this topic in chapter5!) Dollars w high w * w low E D E * E S Supply Demand Employment Figure 4.17: In a competitive labour market, equilibrium is attained at the point where supply equals demand. The going wage is w* and E* workers are employed. Everybody who wants to work for the wage w* can find work.
40 4.10 Application: The Employment Effects of Minimum Wages (the simple case) 4-40 The standard model of the effects of a minimum wage: - It creates or increases unemployment of the low skilled (some formerly employed people will lose their jobs, other people will be attracted into the market, but labour demand declines). - It benefits some employed low skilled workers but disadvantages others. - The unemployment rate is higher the higher the minimum wage and the more elastic the labour supply and demand curves.
41 4-41 Figure 4.19: The Impact of the Minimum Wage on Employment (the simple case or standard model ) Dollars w * w E E * E S D S Employment A minimum wage set above the equilibrium wage forces employers to cut employment (from E* to E bar). The higher wage also encourages (E S - E*) additional workers to enter the market. The minimum wage creates unemployment (E bar E S ).
42 4-42 The Impact of Minimum Wages on the Covered and Uncovered Sectors Dollars Dollars S U (If workers migrate to covered sector) S C w S U w * w * S U (If workers migrate to uncovered sector) D C D U E E C Employment E U E U E U Employment (a) Covered Sector (b) Uncovered Sector If the minimum wage applies only to jobs in the covered sector, the displaced workers might move to the uncovered sector, shifting the supply curve to the right and reducing the uncovered sector s wage. If it is easy to get a minimum wage job, workers in the uncovered sector might quit their jobs and wait in the covered sector until a job opens up, shifting the supply curve in the uncovered sector to the left and raising the uncovered sector s wage. Labour movements between the sectors will stop when the expected wage in the min. wage sector equals the sure wage in the uncovered sector.
43 The Employment Effects of Minimum Wages (the non-standard model ) 4-43 Lots of empirical studies on the impact of minimum wages on employment (often using data on teenagers). US findings: minimum wage up, teenage employment down (elasticity between 0.1 and 0.3). Some recent studies seem to contradict this consensus : Imposing a minimum wage might actually increase employment! (5 reasons that might explain this results, pp. 144/5) - NOTE: In this chapter only the empirical evidence is introduced. A theoretical model that might be able to explain these findings is contained in chapter 5, section 5.8, of the Borjas textbook. Some facts from two NZ studies were mentioned in class (Hyslop and Stillman, 2007; Pacheco, 2007). Full references are given in your Course Reading List. A two page handout on the NZ minimum wage was also provided.
44 Adjustment Costs and Labour Demand So far our labour demand model assumed that a firm can instantly change the level of employment. This is not the case in reality. The expenditures that firms incur as they adjust the size of their workforce are called adjustment costs. - Variable adjustment costs are associated with the number of workers the firm will hire and fire. - Fixed adjustment costs do not depend on how many workers the firm is going to hire and fire. The two types of adjustment costs will have different implications for firm behaviour.
45 4-45 Figure 4.21: Asymmetric Variable Adjustment Costs Variable Adjustment Costs C Change in Employment If there are variable adjustment costs, changing employment quickly is costly, and these costs increase at an increasing rate. If government policies prevent firms from firing workers, the costs of trimming the workforce will rise even faster than the costs of expanding the firm.
46 4-46 Slow Transition to a New Labour Equilibrium Employment A 50 B C Time Variable adjustment costs encourage the firm to adjust the employment level slowly. The expansion from 100 to 150 workers might occur more rapidly than the contraction from 100 to 50 workers if government policies tax firms that cut employment.
47 4-47 Adjustment Costs and Labour Demand If there are fixed adjustment costs, they have to be paid whether the firm hires or fires one or many workers. The firm faces a cost-benefit situation: Is it profitable to increase the number of workers now (extra revenue) and pay the fixed adjustement costs (extra cost)? Sometimes it will be, sometimes it will not. It depends on whether variable or fixed adjustment costs dominate: - If fixed adjustment costs are large, employment changes in a firm will either be sudden and large, or they will not occur at all. - If variable adjustment costs are large (compared to fixed adjustment costs) employment changes are likely to occur slowly. Both types of adjustment costs are important in reality. We can say that firms usually take a while to adjust to a new equilibrium when economic circumstances change (6 months to adjust half-way?).
48 4-48 Adjustment Costs and Labour Demand There are some other interesting topics in section 4.11 that students should read and try to understand but that are not covered in class: - The likely impact of employment protecton legislation. - The distinction between workers and hours (including the Theory at Work piece on work-sharing in Germany ). Increasing fixed costs of employment (p. 152) - Job creation and job destruction: Lots of it is going on at the same time! This is also the case in NZ: In the year to December 2005, there was an average quarterly worker turnover rate of 17.6 percent. By firm size, it was highest in firms with 1-5 employees (19.2%), while firms with 100+ employees had the lowest (15.8%). See Statistics NZ Linked Employer-Employee Data December 2005 quarter (published February 2007, availble on-line).
49 Shifts in Labour Supply and Labour Demand Curves Generate the Observed Data on Wages and Employment S 0 Dollars Z P S 1 w 0 R w 2 Q Z w 1 D 1 D 0 E 0 E 1 E 2 Employment
50 How to estimate labour demand and labour supply elasticities? 4-50 This is very tricky. The textbook gives an example, which should be of interest to those students that also do, or intend to do, a course in econometrics. Essentially, because observed wage and employment data are almost always due to both shifts in the demand and supply curve, empirical economist somehow have to hold constant one curve to estimate the other. This is done in econometrics using the method of instrumental variables. Good instrumental variables are often difficult to find.
Chapter 3 Labour Demand McGraw-Hill/Irwin Labor Economics, 4 th edition Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved. 4-2 Introduction Firms hire workers because consumers want to
Lecture 3 Labour Demand Lecturer: Dr. Priscilla T. Baffour Determinants of Short Run Demand for Labour The wage rate: The wage rate is a very important determinant of labour demand. Thus the higher the
Heather Krull Final Exam Econ190 May 1, 2006 Name: Instructions: 1. Write your name above. 2. No baseball caps are allowed (turn it backwards if you have one on). 3. Write your answers in the space provided
Economists typically assume that firms or a firm s owners try to maximize their profit. et R be revenues of the firm, and C be the cost of production, then a firm s profit can be represented as follows,
Topic 3.1b Long-Run Labour Demand Professor H.J. Schuetze Economics 370 Long-Run Labour Demand In the long-run the firm can now vary both inputs and. Typically the firms production and employment decisions
CHAPTER 3 The Demand for Labor In addition to the multiple choice and quantitative problems listed here, you should answer review questions 1, 3, 5, and 7 and problems 1-4 at the end of chapter 3. Multiple-Choice
Ecn 100 - Intermediate Microeconomics University of California - Davis December 7, 2010 Instructor: John Parman Final Exam - Solutions You have until 12:30 to complete this exam. Be certain to put your
Review Notes for Chapter 5 1. Optimal decision making by anyone Engage in an activity up to the point where the marginal benefit= marginal cost Sunk costs are costs which must be borne regardless of future
Chapter 1- Introduction A SIMPLE ECONOMY Central PROBLEMS OF AN ECONOMY: scarcity of resources problem of choice Every society has to decide on how to use its scarce resources. Production, exchange and
BACHELOR OF BUSINESS Sample FINAL EXAMINATION Subject Code : ECO201 Subject Name : LABOUR ECONOMICS This examination carries 50% of the total assessment for this subject. Examiner(s) Moderator(s) Joyce
Chapter 3 Labor Demand 3.1 Introduction The objective of this chapter is showing the concept of labor demand, how to derive labor demand both short run and long run, elasticity, and relating policy. We
Ecn 100 - Intermediate Microeconomics University of California - Davis December 7, 2010 Instructor: John Parman Final Exam You have until 12:30 to complete this exam. Be certain to put your name, id number
Ecn 00 - Intermediate Microeconomic Theory University of California - Davis September 9, 009 Instructor: John Parman Final Exam - Solutions You have until :50pm to complete this exam. Be certain to put
Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility
Chapter 5 The Behavior of Firms This chapter focuses on how producers make decisions regarding supply. Individuals demand goods and services. Firms supply goods and services. An important assumption is
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman Final Exam You have until 8pm to complete the exam, be certain to use your time wisely.
Notes on Chapter 10 OUTPUT AND COSTS PRODUCTION TIMEFRAME There are many decisions made by the firm. Some decisions are major decisions that are hard to reverse without a big loss while other decisions
Economics MCQ (1-50) GAT Subject Management Sciences www.accountancyknowledge.com 51. If a 5% increase in price causes no change in total revenue, this means? (a) Demand is price inelastic (b) Demand is
Please recall how TP, MP and AP are plotted The Marginal Revenue Product (MRP) The increase in total revenue for every additional labor unit employed. Units of Labor TP MP Product Price TR MRP ( TR/ L)
Econ 300: Intermediate Microeconomics, Spring 2014 Final Exam Study Guide 1 Chronological order of topics covered in class (to the best of my memory). Introduction to Microeconomics (Chapter 1) What is
1 Chapter 4- Income distribution and factor pricing Syllabus-Input markets: demand for inputs; labour markets, land markets, profit maximisation condition in input markets, input demand curves, distribution
Study Guide Final Exam, Microeconomics 1. If the price-consumption curve of a commodity slopes downward how can you tell whether the consumer spends more or less on this commodity from her budget (income)?
Chapter 14 Labor Chapter Outline A Perfectly Competitive Firm s Demand for Labor Market Demand Curve for Labor An Imperfect Competitor s Demand for Labor Labor Supply Market Supply Curve Monopsony Minimum
Chapter 14 Labor Chapter Outline A Perfectly Competitive Firm s Demand for Labor Market Demand Curve for Labor An Imperfect Competitor s Demand for Labor Labor Supply Market Supply Curve Monopsony Minimum
More Tutorial at www.dumblittledoctor.com Microeconomics 1. To an economist, a good is scarce when: *a. the amount of the good available is less than the amount that people want when the good's price equals
ECON 370 - Chapter 5 - Labour Economics Maggie Jones Demand for Labour in Competitive Labour Markets Demand for Labour in Competitive Labour Markets The principles that determine the demand for any factor
CHAPTER 16 Employment and Pricing of Inputs What determines the employment level and prices of inputs used to produce final products? Chapter Outline 16.1 The Input Demand Curve of a Competitive Firm The
Chapter 12 12-1 Incentive Pay 12-2 Introduction The chapter analyses how and why different methods of compensation arise in the labour market and how they affect worker productivity and firm profitablility.
Name Block Date Choose-Your-Own S1 Study Adventure AP Microeconomics Three parts: 1) Additional Concept practice; 2) Concept Review Qs; 3) Graphing Review Part 1: Additional concept practice Perfect competition
Chapter 5 MULTIPLE-CHOICE QUESTIONS 1. The short run is defined as a period in which: a. the firm cannot change its output level b. all inputs are variable but technology is fixed c. input prices are fixed
Costs Costs: Introduction Managerial Problem Technology choice at home versus abroad: In western countries, firms use relatively capital-intensive technology. Will that same technology be cost minimizing
Economics 2 Spring 2018 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 3 1.a. A monopolist is the only seller of a good. As a result, it faces the downward-sloping market
192 Ehrenberg/Smith Modern Labor Economics: Theory and Public Policy, Tenth Edition Review Questions Choose the letter that represents the BEST response. Unions and Collective Bargaining 1. Which of the
Economics 448W, Notes on the Classical Supply Side Professor Steven Fazzari These notes cover the basics of the first part of our classical model discussion. Review them in detail prior to the second class
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis March 19, 2009 Instructor: John Parman Final Exam You have until 5:30pm to complete the exam, be certain to use your time wisely.
Week One What is economics? Chapter 1 Economics: is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives
Question # 1 of 15 ( Start time: 01:24:42 PM ) Total Marks: 1 A person with a diminishing marginal utility of income: Will be risk averse. Will be risk neutral. Will be risk loving. Cannot decide without
1.5 Theory of the firm and its market structures - Production and costs Syllabus item: 42 Weight: 3 Definition: Total product (TP): The total output that a firm produces, using its fixed and variable factors
UNIT II THEORY OF PRODUCTION AND COST ANALYSIS Production Function:- The production function expresses a functional relationship between physical inputs and physical outputs of a firm at any particular
Chapter 11 Perfect Competition Introduction: To an economist, a competitive firm is a firm that does not determine its market price. This type of firm is free to sell as many units of its good as it wishes
Chapter 6 Firms and Production Hard work never killed anybody, but why take a chance? Charlie McCarthy Chapter 6 Outline 6.1 The Ownership and Management of Firms 6.2 Production 6.3 Short Run Production:
Module 5 Production analysis Introduction This module moves from the decisions of utility-maximising households to examine the factors governing the behaviour of perfectly competitive profit-maximising
Microeconomics Modified by: Yun Wang Florida International University Spring 2018 1 Chapter 11 Technology, Production, and Costs Chapter Outline 11.1 Technology: An Economic Definition 11.2 The Short Run
Contents Unit 1 Introduction to Business (Managerial) Economics Meaning of Managerial Economics... 2 Definitions of Managerial Economics... 2 Features (Characteristics) of Managerial Economics... 5 Nature
www.liontutors.com ECON 102 Brown Final Exam (New Material) Practice Exam Solutions 1. B A very large percent of their earnings comes from economic rent 2. B Any funds left, after everyone who has a claim
Ecn 100 - Intermediate Microeconomics University of California - Davis June 8, 2010 Instructor: John Parman Final Exam - Solutions You have until 10:00am to complete this exam. Be certain to put your name,
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis December 10, 009 Instructor: John Parman Final Exam - Solutions You have until 1:30pm to complete this exam. Be certain to put
Chapter 5 Price SS p f This chapter will be built on the foundation laid down in Chapters 2 and 4 where we studied the consumer and firm behaviour when they are price takers. In Chapter 2, we have seen
Ecn 100 - Intermediate Microeconomics University of California - Davis November 12, 2010 Instructor: John Parman Midterm 2 - Solutions You have until 11:50am to complete this exam. Be certain to put your
Topic 3.2a Minimum Wages Professor H.J. Schuetze Economics 370 Minimum Wages Canada: Each province sets its own minimum wage. Interprovincial/international industries are under federal jurisdiction Reason
SUMMARY OF THE MODELS OF UNIT 4 Chapter 13: Eight Labor Market Models 1. Competitive labor market in a competitive product market 2. Competitive labor market in an imperfectly competitive product market
Semester-I Course: 01 (Introductory Microeconomics) Unit IV - The Firm and Perfect Market Structure Lesson: Short-Run Costs and Output Decisions Lesson Developer: Jasmin Jawaharlal Nehru University Institute
Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided
Practice Exam 3: S201 Walker Fall 2009 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.
Chapter 6 Costs SOLUTIONS TO END-OF-CHAPTER QUESTIONS THE NATURE OF COSTS 1.1 The ships that return to Asia are half or completely empty; therefore, the cost of having more merchandise in them is almost
MICROECONOMIC FOUNDATIONS OF COST-BENEFIT ANALYSIS Townley, Chapter 4 Review of Basic Microeconomics Slides cover the following topics from textbook: Input markets. Decision making on the margin. Pricing
MICROECONOMICS II - REVIEW QUESTIONS I. What is a production function? How does a long-run production function differ from a short-run production function? A production function represents how inputs are
MICROECONOMICS SECTION I Time - 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best
Economics 370 Professor H.J. Schuetze Practice Problem Set 5 (ANSWERS) 1. Autos Slope=-1 Slope = -2 40 A1 U2 U1 F1 F2 20 Food a) The opportunity cost of producing one more unit of food is 2 autos foregone.
Resource Markets 1 Demand & Supply of Resources Resource demand Firms demand resources As long as marginal revenue exceeds marginal cost To maximize profit Resource supply People supply resources To the
Classnotes for chapter 13 Chapter 13: Very important Focuses on firms production and costs Examines firm behavior in more detail (previously we simply looked at the supply curve to understand firm behavior)
Chapter 12 outline The shift from consumers to producers Resource markets are markets in which business firms demand factors of production from household suppliers. (As you can see the tables are now turned
Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and
Chapter 8 Short-Run Costs and Prepared by: Fernando & Yvonn Quijano 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair Short-Run Costs and 8 Chapter Outline Costs in the
Lecture 5 Producer Behavior THE PRODUCTION FUNCTION The Digital Economist Production refers to the conversion of inputs, the factors of production, into desired output. This relationship is about making
Name Student # Practice Midterm Exam #2 Economics 370 University of Victoria - Fall 2016 Prof. H.J. Schuetze The midterm exam consists of ten multiple choice questions and two short-answer style questions.
CHAPTER 12 Production and Cost Analysis I Production is not the application of tools to materials, but logic to work. Peter Drucker McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All
This year, if national product at factor cost is Rs. 500 billion, indirect taxes 150 billion and subsidies Rs. 50 billion, then national product at market prices will be: _ Rs. 700 billion. _ Rs. 650 billion.
Chapter 17: Labor Markets Econ 102: Introduction to Microeconomics 1 1.1 Goals of this class Goals of this class Learn how employment and wages are determined in equilibrium. Learn what can shift labor
Advanced Monetary Theory and Policy EPOS 2012/13 Price setting problem: Rigidities Giovanni Di Bartolomeo email@example.com New Keynesian Economics Most economists believe that short-run
Consumer Choice Introduction Managerial Problem Paying employees to relocate: when Google wants to transfer an employee from its Seattle office to its London branch, it has to decide how much compensation
Chapter 4 Labor Demand Elasticities 49 Review Questions Choose the letter that represents the BEST response. The Own-Wage Elasticity of Labor Demand 1. If the wage paid to automobile workers goes up by
11 OUTPUT AND COSTS Decision Time Frames The firm makes many decisions to achieve its main objective: profit maximization. Some decisions are critical to the survival of the firm. Some decisions are irreversible
Natural Experiments: Case Study Minimum Wage SS 2010 Alexander Spermann Part 1: Theory Monopsony Monopsony ES pp73 Borjas pp 193 One-company town Intuition: firm has to increase wage to attract workers
Theory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals. We will deal with a particular set of assumptions, but we can modify
AP MICROECONOMICS-217 Name: MICRO FINAL EXAM Study Guide Instructions: Please fight senioritis! Study & be efficient with your time. DUE: Friday April 28 th (Multiple choice block 4/26 th or 27 th Free
Micro: TA Session 4, Problem set MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The main difference between a short-run production function and
The Markets for the Factors of Factors of production are the inputs used to produce goods and services. The demand for a factor of production is a derived demand. A firm s demand for a factor of production
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis September 9, 2009 Instructor: John Parman Final Exam You have until 1:50pm to complete this exam. Be certain to put your name,
www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount
Come & Join Us at VUSTUDENTS.net For Assignment Solution, GDB, Online Quizzes, Helping Study material, Past Solved Papers, Solved MCQs, Current Papers, E-Books & more. Go to http://www.vustudents.net and
Unit 5. Producer theory: revenues and costs Learning objectives to understand the concept of the short-run production function, describing the relationship between the quantity of inputs and the quantity
1 2003/2004 SECOND EXAM 103BE/BX/BF Microeconomics, Closed part Note 1: Always read all the options before choosing one, and then select the best option. Sometimes the final option may read like all the
pink=a FIRST EXAM Chapter Two Economics 323 Microeconomic Theory Fall 2015 1. The equilibrium price in a market is the price where a. supply equals demand b. no surpluses or shortages result c. no pressures