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Question 1 a) Explain how a firm's long run demand for labour is derived. (40%) Labour is a derived demand realised by the demand for the product that the labour will be producing. The theory of 'labour demand' explains the behaviour of the firm with the key principle being to achieve the optimal amounts of labour employers will want to utilise at different wage levels. We must make several assumptions when describing how the long run labour demand is derived. Firstly we must assume that firms are profit maximisers and therefore will attempt always to minimise any costs incurred. Further assumptions to simplify analysis of labour demand are that there are no costs of employment other than hourly wages and productivity of labour is independent of time worked. I.e. Labour is homogenous. The production process involves only two inputs, Labour (L) and Capital (K): THE FIRMS' PRODUCTION FUNCTIONS IN THE SHORT AND...

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