Tutorial questions
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What do we mean by a “competitive” firm? What are the implications of the assumption that
firms are competitive for how we analyze the firm’s demand for labour?
In a simple diagram, illustrate the short-run demand curve for labor of a single competitive firm.
Now suppose that the product price increases. Illustrate the effect of this price change on the
short-run labour demand curve in your diagram.
Isoquants never cross. Why?
The marginal rate of technical substitution is positive because firms use both capital and labor to
produce output. True, false or uncertain? Explain.
Why are isoquants convex?
When thinking about labour demand, the difference between the short-run and the long-run is
that “in the long-run we’re all dead.” True, false or uncertain. Explain.