Demand for labour

• What is demand for labour?

  The number of workers firms want to employ
• What is derived demand for labour?

  Demand for workers due to product demand
• What factors affect the demand for labour in an industry?

  • Wage
  • Price of the product
  • Demand for the product
  • Productivity (labour and capital)
  • Capital (price of capital)
• How is the marginal revenue product (MRP) calculated?

  MRP = MP x MR
• What does an increase in product price do to MRP?

  It increases MRP
• What is wage elasticity of demand for labour?

  Responsiveness of labour demand to wage changes
• What factors affect the wage elasticity of demand for labour (SECT)?

  • Substitutability of capital for labour
  • Elasticity of the final product (PED)
  • Cost of labour as a percentage of total cost
  • Time period
• What is labour productivity?

  Output per worker in a time period
• What are unit labour costs?

  Average cost per worker including all expenses
• What is marginal revenue (MR)?

  Revenue from selling the last unit of output
• What is marginal physical product (MPP)?

  Increase in output from an extra worker
• What does marginal revenue product theory (MRP) state?

  MRP = MPP x MR
• When will firms hire workers according to MRP?

  Until MRP = W (MC)
• What is MRPL?

  The labour demand curve
• What are the components of wage determination in a competitive market?

  • MRP
  • AC = MC
  • Firm
  • Industry
  • Supply (s)
  • Demand (D)