Suppose you solve the profit maximization problem for a single-input, price-taking producer whose technology is given by 
The labor demand function is 
a. Suppose
src="https://qoschin.com/media/3/ppg__cognero__Chapter_11_One_Input_and_One_Output_A_Short_Run_Producer_Model__media__59179cfd-ca3e-489f-aabb-5a92da40ce1d.PNG" style="vertical-align: -13px;" width="79px" height="38px" align="absmiddle" /> Might 
in fact be the correct labor demand function? Explain.
b. Suppose 
Might 
in fact be the correct labor demand function? Explain.
c. Intuitively explain how (b) might arise from the profit maximization problem.
What will be an ideal response?
a. Yes -- labor demand functions in face ought to tell us that an increase in wage causes a reduction in labor hired.
b. No -- this would mean the labor demand curve slopes up, which is not possible.
c. This can emerge in a profit maximization problem if the producer choice set is non-convex. For instance, if 
, the first order conditions give us
.
If 
, 
In a graph, this happens when we have identified a production plan that lies at a tangency that is a local minimum.
Economics
src="https://qoschin.com/media/3/ppg__cognero__Chapter_11_One_Input_and_One_Output_A_Short_Run_Producer_Model__media__59179cfd-ca3e-489f-aabb-5a92da40ce1d.PNG" style="vertical-align: -13px;" width="79px" height="38px" align="absmiddle" /> Might in fact be the correct labor demand function? Explain.
b. Suppose Might in fact be the correct labor demand function? Explain.
c. Intuitively explain how (b) might arise from the profit maximization problem.
What will be an ideal response?
b. No -- this would mean the labor demand curve slopes up, which is not possible.
c. This can emerge in a profit maximization problem if the producer choice set is non-convex. For instance, if
, the first order conditions give us.If
, In a graph, this happens when we have identified a production plan that lies at a tangency that is a local minimum.You might also like to view...
If the Fed buys U.S. government securities from banks, the federal funds rate ________ and banks' reserves ________
A) does not change; increases B) falls; decrease C) rises; increase D) rises; decrease E) falls; increase
When firms in monopolistic competition incur an economic loss, some firms will
A) enter the industry and produce more products. B) exit the industry, and demand will increase for the firms that remain. C) exit the industry, and demand will decrease for the firms that remain. D) enter the industry, and demand will become more elastic for the original firms. E) exit the industry and other firms will enter.