L15

1
L15

• Producers

2
Producers

• Producers have a technology
• Technology given by production function
• Two inputs Capital and Labor
• Example
• MPL and MPK (decreasing)
• Short and Long run (fixed K or not)
• Constant Returns to Scale

3
Short Run (fixed K)

• Profit maximization
• Price taking
• Example (Short run)

4
Short run Demand for Labor
5
Labor Market Equilibrium
6
Labor Market Equilibrium

• Capital
• Preferences
• Taxes

7
Labor Market Minimal Wage
8
Long run ( not fixed)

• We choose simultaneously and

9
Long run
10
Profit Maximization and CRS

• Profit
• Suppose that are optimal
• What can we say about at ?
• Profit maximization not always well defined