Potential income and the labour market - The classical labour market - Labour demand

9 important questions on Potential income and the labour market - The classical labour market - Labour demand

When do firms demand another unit of labour?

When it will raise more revenue than it costs

What do you read of the partial production function?

The output (in revenue or production) at given the resource

Of what is the marginal product of labour schedule the partial derivative?

The partial production function
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What is the relation between real wage and marginal product of labour  when it is profitable to employ?

Then the marginal product of labour exceeds the real wage

How is profits defined when looking at labour demand?

Profits = output - wage costs

What variable - which is not necessarily fixed - is fixed in a profit curve?

The real wage rate

What do iso-profit lines combine?

All combinations of wage and employment that generate a fixed profit

What iso-profit line is associated with more profit when there are two in a diagram?

The lower one

Why do iso-profit lines always intersect with the labour demand curve at their peak?

Because firms expent their employment until they reach the lowest possible iso-profit line, since this line is associated with the highest profits

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