Labour Economics

1. Show that for a cost-minimizing firm (in the long run) a reduction in the wage rate will reduce total cost. You can assume the production function is of the form q = nc. 2. Intuitively, why should the long-run labor demand curve be more elastic than the short-run labor demand curve? That is, why should a 1% reduction in the wage rate increase employment by a greater percentage in the long run than in the short run? 3. Consider a firm that produces (in the long run) using two inputs: domestic labor (ED.) and foreign labor (EF„). The firm's production function is of the form q = A/F7 • Denote by typo, the domestic wage rate and by wF, the v —DomaFor foreign wage rate. a) Write the cost-minimization condition for the firm. How much of each type of labor is demanded? b) Suppose a major technological advancement is made in the foreign country. How might this affect the quantity of labor demanded domestically? Explain. b) Suppose the central bank in the foreign country raises the interest rate to fight inflation. How might this affect the quantity of labor demanded domestically? Explain.