Question

Firms Behavior in Labor Market

a- We are interested in the causal relationship between units of labor demanded by firm (??) and price of firm’s output (???????). What factors do we need to hold fixed to be able to correctly hypothesize about the causal relationship between the two variables? Name all of them. Holding those factors constant, do you expect ?? to increase or decrease as a result of an increase in ???????? Explain and draw your answer on a diagram where the horizontal axis refers to ?? and the vertical axis refers to ???????.

b- Assume that a labor-augmenting technological innovation happens in this market. How the graph you drew in part (a) will be affected as a result?

c- Assume that the raw materials that are used in the production of the firm’s output become more expensive. How the graph you drew in part (a) will be affected as a result?

Answer 1

a. we may need to hold consistent the accompanying: cost of other info factors, e.g., machine hours; demand for labour hours by different firms; mechanical progressions prompting a move in the demand for labor by this firm

b. we realize that as the price (of output) goes up a seller supplies a greater amount of the goods/services being referred to. This would require more creation and subsequently more labor input. So with an expansion in the price of output, the firm would request more labor input

c. A labor saving mechanical and technological development will mean less demand for labor at each price level (of output). Consequently the interest bend for labor contribution as an element of the price of output will move leftwards inferring lower amount interest for labor contribution for same price of output. Please see outline underneath, where vertical pivot shows price of output and even horizontal axis shows demand for labor input, and the green line shows the aftereffect of mechanical and technological development bringing about labor saving.

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