To maximize profits, firms choose an optimal demand for factors of production and an optimal quantity of output. This EconModel application focuses on the profit maximizing demand for a factor of production, which in this case is labor.

**Model Link:
The
Demand for Labor**

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the model links>

Printable PDF Exercises

This analysis is closely related to the Average Cost / Marginal Cost analysis of the optimal quantity of output. Indeed, given that capital is taken as fixed, choosing the optimal demand for labor and choosing the optimal quantity of output both lead to the same optimal level of production.

The basic analysis for this application leads you through a sequence of steps from the point of view of demand for a factor of production:

- Draw Graphs of Production and Profits
- Maximize Profits Given a Wage Rate
- Derive the Labor Demand Curve
- Analyze Effects of Price Changes
- Analyze Effects of Technology Changes

A second sequence of steps shows the correspondence between the profit-maximizing labor demand curve and the average cost/marginal cost view of the profit-maximizing quantity of output.

**Classic
Economic Models**

**Microeconomics**

**Introduction**

Overview of Micro Models

**Supply and Demand**

Basic Supply and Demand

Who Pays a Sales Tax?

The Cobweb Model and

Inventory-Based Pricing

**Theory of the Firm**

Perfect Competition

Monopoly and

Monopolistic Competition

Price Discrimination

The Demand for Labor

**Theory of the Consumer**

Two Goods - Two Prices

Intertemporal Substitution

Labor Supply, Income Taxes,

and Transfer Payments

**Macroeconomics**

**Introduction**

Overview of Macro Models

**Models in Chronological Order**

The Classical Model

The Simple Keynesian Model

The Keynesian IS/LM Model

The Mundell-Fleming Model

Real Business Cycles

The IS/MP Model

The Solow Growth Model

**Financial Markets
**
Utility-Based Valuation of Risk

Mean-Variance Analysis:

Risk vs. Expected Return

Fixed Income Securities:

Mortgage/Bond Calculator

Growth Investments:

Present Value Calculator

**Resources**