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Classroom Lecture Notes - Kings

3 Pages

Course Code
Economics 2152A/B
Ayoub Yousefi

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Chapter 3, Production Function Q = A x F(K,N) The Demand for Labour (Demand for & supply of labour) Over a short period of time, the economies capital stock can be assumed as fixed. Unlike capital, labour is flexible. The amount of labour employed changes fairly quickly. Neo-classical approach - Microeconomic theoretical foundation for macroeconomic analysis - Employment at the firm level, eg. We consider individual firm decision in hiring Assumptions: o To earn the highest possible level of profit. o Wages are determined in a competitive market (not set by firms) o Workers (in any class) are all alike Marginal product of Labour (MP ) Nnd Labour demand MP ,NMeasures the contribution to the total output of an additional worker (in terms of extra output) MP =N∆ total output ∆ # of workers How many units of labour to hire? - Compare MP to Neal wage (w) - Marginal Revenue Product of Labour(MRP) = MP x P N X - P X Price of output per unit - W: nominal wage - w: real wage w= W/P X - General: real wage = nominal wage/Price Index (eg CPI) Increase employment Decrease Employment I. In real terms: MP >Nw MP W N MRP
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