On Labour Demand and Equilibria of the Firm
8 Pages Posted: 1 Sep 2005
This note considers a linear programming formulation of the problem of the firm. A neoclassical non-increasing labour demand function is derived from the solution of the linear program. Only a set of measure zero on this function, one or two points in the examples examined, provides equilibria of the representative firm. Equilibria of the representative firm are characterized by decisions of its managers that allow the same decisions to be made in successive periods. Hence, one can explain the quantity of labour that firms desire to hire either by a traditional neoclassical labour demand function or by equilibria of the firm, but generally not both.
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