Classical General Equilibrium Model - Labor Demand

Labor Demand

The consumers of the labor market are firms. The demand for labor services is a derived demand, derived from the supply and demand for the firm's products in the goods market. It is assumed that a firm's objective is to maximize profit given the demand for its products, and given the production technology that is available to it.

Some notation:

Let be price level of commodities Let be nominal wage Let be real wage (w/p) Let be profit of firms Let be labor demand Let be the firms output of commodities that it will supply to the goods market.