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Intermediate Microeconomics


2. Labor Demand


The topic of labor supply is important, but labor-market outcomes also depend on the hiring and firing behavior of firms. The neoclassical model of labor demand begins with the plausible assumption that firms hire/fire workers due changes in the demand for the goods that the firm produces (often referred to as "derived demand"). The model of labor demand focuses on the following decisions made by firms: short-run hiring/firing decisions, long-run hiring/firing decisions, and the ability of firms to substitute between capital and labor when their relative prices change. In the Pencasts for this topic, we cover the basics of production functions, employment in the short run, isoquants and their shapes, the minimization of costs, the maximization of output, and how changes in factor prices affect the demand for labor in the long run.


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Goals of Firms

This Screencast covers the typical assumptions made regarding firm behavior and other considerations. [Play ScreenCast]


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Basics of Production

This Screencast discusses the inputs used to produce outputs, including capital, labor and materials. [Play ScreenCast]


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Production Functions

This Screencast discusses a general production function and concept of technological efficiency. [Play ScreenCast]


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Time and the Variability of Inputs

This Screencast discusses fixed and variable inputs and how time plays an important role in determining the ability of a firm to choose particular inputs to be used in the production process. [Play ScreenCast]


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Short-Run Production

This Pencast covers short-run production, assuming that capital is fixed and labor is variable (a common assumption). It also shows how to derive the marginal and average products of labor. [Play Pencast]


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Short-Run Production: An Application

This Pencast covers short-run producing using a particular production function. Plots of the production function, marginal product of labor and average product of labor are provided. [Play Pencast]


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Interpretation of the Marginal Product of Labor Curve

This Pencast discusses the shape of the marginal product of labor curve and the economic intuition behind its shape. [Play Pencast]


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Law of Diminishing Marginal Returns

This Pencast defines the law of diminishing marginal returns and shows how to determine mathematically whether the law applies to a give production function. [Play Pencast]


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Employment in the Short Run

This Pencast illustrates how a firm chooses how many workers to hire in the short run. It is shown that the intersection of the value of the marginal product of labor curve and the marginal cost curve (which is the wage rate) determines the optimal quantity of workers. [Play Pencast]


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Long-Run Production

This screencast discusses long-run production, with emphasis on all inputs being variable. Thus, a particular level of output can be produced with many different combinations of inputs. [Play ScreenCast]


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Properties of Isoquants

This Screencast discusses the four key properties of isoquants. [Play ScreenCast]


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Shapes of Isoquants

This Pencast illustrates isoquants that have different shapes, including inputs that are perfect substitutes, inputs that are not substitutable and inputs that imperfectly substitutable. [Play Pencast]


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Marginal Rate of Technical Substitution

This Pencast shows how to use calculus to find the slope of the isoquant, which is referred to as the marginal rate of technical substitution. [Play Pencast]


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Marginal Rate of Technical Substitution: An Application Using a Cobb-Douglas Production Function

This Pencast uses the Cobb-Douglas production function to derive the marginal products of labor and capital and the marginal rate of technical substitution. [Play Pencast]


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Diminishing Marginal Rate of Technical Substitution

This Pencast illustrates the concept of diminishing marginal rate of technical substitution, which effectively means that the slope of an isoquant tends to flatten as more of one input (the one of the x-axis) is substituted for the other input (the one of the y-axis).[Play Pencast]


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Elasticity of Substitution

This Pencast describes a measure that indicates the ease at which a firm can substitute between inputs. [Play Pencast]


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Returns to Scale

This Pencast covers constant, increasing and decreasing returns to scale and provides an example of how to determine whether the Cobb-Douglas production function exhibits constant, increasing and decreasing returns to scale. [Play Pencast]


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Technical Progress

This Pencast describes and provides examples of neutral technical changes that are time constant, neutral technical changes that vary over time and nonneutral technical changes. [Play Pencast]


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Minimizing Costs

In this Pencast, we demonstrate how a firm minimizes its costs, given a particular level of output. In particular, we use the Lagrangian method to derive a condition for cost minimization. [Play Pencast]


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Maximizing Output

In this Pencast, we illustrate how a firm maximizes its output, given a particular level of costs. In particular, we use the Lagrangian method to derive a condition for output maximization. [Play Pencast]


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Factor Price Changes: Part I

In this Pencast, we demonstrate how to find the optimal combination of capital and labor for a given a production function, output level, and factor prices. [Play Pencast]


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Factor Price Changes: Part II

In this Pencast, we demonstrate how to find the optimal combination of capital and labor when factor prices change. [Play Pencast]


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Factor Price Changes: Part III

In this Pencast, use the information provided in the previous two pencast to illustrate graphically how a change in factor prices affects the optimal combination of capital and labor. [Play Pencast]


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