Advanced economics question(Keynes),HELP PLEASE?

Question

1. except for the discovery of the changes in price level, what causes the equilibrium in Long run labour market,compared with the less sensitive adjustment of demand and supply in shortd in LR?
run labour market?

I have some confusion on concept abt this exam Q. I know the less sensitive adjustment of D&S can be caused by the contracts of labours to company , but in this case the labours still have to work due to contracts, then will the quantity transacted really drop? If not , the Qs still =Qd ,how come there is disequilibrium.

And for the reason of Labour union, how can be solve
Are there any other reasons?

2. Keynes assumes price rigidity cos lot of resources haven't been utilited, but what lead to p=mc(no change along cost curve) ? although lot of resources haven't been utilited, why diseconomy of scales doesn't apply?
in reality, mc should rises in the start of production very soon (regradless of how little the production is). also there should still have depreciation causing mc rise once production start(regradless of how little the production is)

it is a bit long, i would really appreciate if you can help ,thanks

Answer 1

I am struggling to understand your questions. In 1) are you asking why short-run adjustments to labor supply (and demand) are less senstive to long-run adjustments?
If so, there are a plentitude of reasons. In the SR, firms must draw from workers local to the firm. In the LR, they can draw laborers from far-away places. In the SR, the skill set of workers is fixed. In the LR, workers can be trained and re-trained. For something particular to Keynes, workers have contracts and such contracts have specified nonminal wage rates. Further, neither workers or firms would be willing to cut nominal wage rates. Thus, in the SR, wages and therefore worker levels are inflexible in the downward direction. Of course, in the LR, contracts are negotiable.

2) Again, I am having trouble understanding your question. Further, I disagree; economies of scale could certainly result in a declining marginal costs. That said, Keynes only assumed there would be price (wage) rigidity in the downward direction. Which, in a time of recession, the market would not automatically adjust -- unemployment would grow, consumption would fall, causing a further deepining of the recession. So, for Keynes, government spending was one obvious way out.

I hope this helps.

Answer 2

although diseconomies of scale may not result in a rising marginal cost (but it is certain for AC,right?), Law of diminishing returns cause the rise of MC indirectly. Under this situation, WHY P did not rise(Price rigidity)?Because P=mc in equilibrium, if MC rises, P should rises also,then there should not be price rigidity.

BUT the case why Law of diminishing returns doesn't apply cause the rise of P and thus MC?WHAT IS THE rationale behind this keynes assumption?

thx foy your patient reading and answer!

Answer 3

Consider the utility function u = f (x1……xn) where xi, i =1,2,……., n are the quantities of the n goods consumed. Let the price of good xi be pi, I = 1, 2,…….., n. Let M be the consumer’s income. Show that the Lagrangian multiplier of the utility maximization problem equals the marginal utility of income.

Answer 4

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