# Shared Flashcard Set

## Details

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

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