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Labor econ
Chpter 4: Labor Demand
59
Economics
Undergraduate 4
11/09/2008

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Cards

Term
A firms production function is a combination of _________ and ________.
Definition

Capital, Labor

Term
The Marginal Product of Labor is:
Definition
 

the change in output resulting from hiring an additional worker, holding constant the quantities of other inputs
Term
The Marginal Product of Capital is:
Definition

 

the change in output resulting from hiring one additional unit of capital, holding constant the quantities of other inputs
Term
As more units of labor and capital are hired, output...
Definition
Increases
Term
When firms hire more workers, output
Definition
rises at decreasing rate
Term
The slope of Total Product Curve
Definition
The Marginal Product Of Labor
Term
The Law of Diminishing Returns for labor
Definition
Eventually, the marginal product of labor declines
Term
Average Product
Definition
the amount of output produced by typical worker
Term
Total product curve
Definition
 
The total product curve gives the relationship between output and the number of workers hired by the firm
Term
The Marginal Product Curve
Definition
 
gives the output produced by each additional worker, and the average product curve gives the output per worker
Term
A firms objective
Definition
Maximize profit, minimize costs
Term
Profit equals
Definition
Total Revenue - total costs
Term
Total costs
Definition
wages x Labor + rental price x Capital
Term
The Value of the Marginal Product ( VMP )
Definition

The marginal Product of labor  X  Dollar value of the output

 

Indicates the benifit derived from hiring additional worker ceterus paribus

Term
A firm hires (x) workers where wage rate equals
Definition
value of marginal product of labor
Term

Labor Demand Curve

Definition

indicates how firm reacts to wage changes

 

downward sloping because of diminishing marginal returns to labor

 

Term
A short run drop in wages will cause a/an _____ in employment
Definition
increase
Term
An increase in the price of output shifts the value of marginal product curve ______, so employment will _______.
Definition
Upward, Increases
Term

The profit maximizing firm should produce up to the point where:

Definition
MC = MR
Term
MC = MR
Definition
The cost of producing an additional unit of output (marginal cost) is equal to the revenue obtained from selling that output (marginal revenue)
Term

Marginal productivity rule

Definition

 hire labor up to the point when the added value of marginal product equals the added cost of hiring the worker

Term

A firm produces until output price equals

Definition
Marginal Cost
Term
Longrun profit maximization aquring by choosing number of workers AND:
Definition
how much plant and equipment to invest in
Term
 The Isoquant curve
Definition

describes the possible combinations of labor and capital that produce the same level of output

Term
Isoquant rules
Definition

- downward sloping

- cannot intercept

- convex to origon

- slope negative  or ratio of MP capital and labor

- higher indicates more output

Term
The Isocost curve
Definition
Indicates possable combinations of Labor and Capital the firm can hire given a specified budget
Term
Higher isocost lines indicate ______costs
Definition
higher
Term
The slope of the isoquant equals
Definition
- wage rate / rental price
Term

A firms optimal combination of inputs

Definition
Isocost line tangent to isoquant curve
Term
Profit maximaztion also means
Definition
cost minimization
Term
cost minimazation occurs where
Definition

Isocost line tangent to isoquant curve

Term

The Marginal Rate of Substitution equals

Definition
the price ratio of capital to labor
Term
In long run, if wages drop, a firm will take advantage of lower prices by __________ and _____________
Definition
expanding production ( scale effect ), rearranging mix of inputs ( substitution effect )
Term
A wage reduction  ________isocost curve, holding constant initial cost outlay constant
Definition
flattens
Term
A wage cut will ________ the marginal cost of production, encourages a firm to ________
Definition
reduce, expand
Term

The Long Run Demand Curve for Labor

Definition
gives a firm's employment at a given wage, downward sloping
Term

A wage cut generates ______effects and _____effects

Definition
substitution, scale
Term
_________encourages a firm to expand, increasing the firm's employment
Definition
The Scale effect
Term
_________ encourages a firm to use more labor intensive method of production, further increasing employment
Definition

The Substitution Effect

Term

When two inouts can be substituted at a constant  rate, the imputs are called ____________

Definition
Perfect substitutes
Term

When an Isoquant is right angled, the inputs are called ___________

Definition
perfect compliments
Term
The ________ effect is large when two imputs are perfect substitutes
Definition
substitution
Term

There is no substitution effect when inputs are ____________

Definition
perfect compliments
Term

The curvature of the isoquant measures _____________

Definition

Elasticity of substitution

Term
Capital and labor are ___________ if isoquant is linear.
Definition
perfect substitutes
Term

The two imputs are ________ if isoquant is right angled

Definition
perfect compliments
Term
__________ is the percentage change in capital to labor given a percentage change in the price ratio
Definition
The elasticity of substitution
Term

In the long run, the long run demand curve is ________ elastic then the short run demand curve

Definition

more

 

in the long run, a firm can take full advantage of economic opportunities introduced by change in wage

Term
An affirmative action _______ a firm's cost
Definition
increases
Term

Labor Demand is more elastic when elasticity of substitution is ________, elasticity of demand for firms output is __________, the _________ labors share in total cost s of production, and the _______ supply elasticity of other factors of production.

Definition
Greater, greater, greater, greater
Term
Inputs can be ______ and ________
Definition
old, new
Term
If cross elasticity of factor demand is positive, the two inputs are __________
Definition
substitutes in production
Term
In a competitive labor market, equalibrium is attained at the point where_______equals _______
Definition
Supply, Demand
Term

In the labor market, the higher the minimum wage, the _______ the unemployment rate

Definition
higher
Term

the benifits of minimum wage  accrue mostly to workers who are not __________ in the distribution of permanent income

Definition
low
Term

 A minimum wage in sector 1 (covered) but not sector 2 (uncovered) causes employment to shift from _____ to _____, thereby _______ the uncovered sectors wage.

Definition
sector 1, sector 2, lowering
Term
The expenditures that firms inccur as they adjust size of their workforce are called __________
Definition
adjustment costs
Term
A quick change in employment causes _______costs, these costs _____________
Definition

high, increase at an incresing rate

Term

Variable adjustment costs encourage firms to adjust employment level at a _______ rate

Definition
slower
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