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Long-Run Demand for Labor

Long-Run Demand for Labor. Production Function: Q = F(K, N) Assume diminishing marginal product of labor and capital Both K and N are variable in the long run Isoquant: All combinations of K and N that yield the same level of output Slope = - MP N MP K. Long-Run Demand for Labor.

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Long-Run Demand for Labor

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  1. Long-Run Demand for Labor Production Function: Q = F(K, N) Assume diminishing marginal product of labor and capital Both K and N are variable in the long run Isoquant: All combinations of K and N that yield the same level of output Slope = - MPN MPK

  2. Long-Run Demand for Labor w = wage (rental rate on labor) r = rental rate on capital C = cost Isocost (Isoexpenditure) line: All combinations of K and N that yield the same level of cost C = rK + wN rK = C – wN K = C/r – (w/r)N Slope = -(w/r)

  3. Long-Run Demand for Labor = = Cost minimizing combination of K, N MPN P*MPN w MPK P*MPK r

  4. Long-Run Demand for Labor = = Cost minimizing combination of K, N MPN P*MPN w MPK P*MPK r Short-run Maximization

  5. Peter F. Orazem (1998) “Empirical Isoquants and Observable Optima: Cobb and Douglas at Seventy” Review of Agricultural Economics 20: 489-501.

  6. Q=1 Peter F. Orazem (1998) “Empirical Isoquants and Observable Optima: Cobb and Douglas at Seventy” Review of Agricultural Economics 20: 489-501.

  7. Q=1 Peter F. Orazem (1998) “Empirical Isoquants and Observable Optima: Cobb and Douglas at Seventy” Review of Agricultural Economics 20: 489-501.

  8. K/N W Peter F. Orazem (1998) “Empirical Isoquants and Observable Optima: Cobb and Douglas at Seventy” Review of Agricultural Economics 20: 489-501.

  9. K/N As w increases relative to r, move to more capital intensive production methods W Peter F. Orazem (1998) “Empirical Isoquants and Observable Optima: Cobb and Douglas at Seventy” Review of Agricultural Economics 20: 489-501.

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