CH. 20

THE EMPLOYMENT FUNCTION

283

in any industry increases when more effective demandin terms of wage-units is directed towards it, namely

Provided we can assume that the price is equal to themarginal prime cost, we then have

where P r is the expected profit. 1 It follows from thisthat if e or = o, i.e. if the output of the industry is per-fectly inelastic, the whole of the increased effectivedemand (in terms of wage-units) is expected to accrue tothe entrepreneur as profit, i.e. AD m .=AP r ; whilst ife or = 1, i.e. if the elasticity of output is unity, no partof the increased effective demand is expected to accrueas profit, the whole of it being absorbed by the elementsentering into marginal prime cost.

Moreover, if the output of an industry is a function<£(N r ) of the labour employed in it, we have 2

where p wr is the expected price of a unit of output in

1 For, if p ar is the expected price of a unit of output in terms of the wage-unit, AD„ r = A(p„ r O r ) =/>„ r AO r + O r Ap„ r

dO T D,

AD ror =— l— AP r

I &or

N r f'(Nr)

PAt'mr

so that

or

AO r + O r Ap,

O r Ap„ r = AD„ r (i

But

O r A p m = AD„ r - p m AO,

= AD„ r - (marginal prime cost) AO,

Hence

= AP.

AD„ r = —h- AP r .

For, since D wr =p wr O„ we have

N f r/," (N r )

{0'(N r )} 2 p„’