demand for labour

• Who demands labor in a labor market?

  Firms and employers
• Who supplies labor in a labor market?

  Individuals
• What is achieved when the demand for labor equals the supply of labor?

  Equilibrium wage rate and worker quantity
• What does the demand curve for labor for an individual firm show?

  Workers firms will hire at a given wage
• Why is the demand for labor considered a derived demand?

  It comes from the demand for goods/services
• On what do firms base their labor demand decisions?

  Marginal revenue product
• What is marginal revenue product?

  Extra revenue from an additional worker
• What is the equation for marginal revenue product (MRP)?

  Marginal product * marginal revenue
• What does short run mean in the context of the table data for an individual firm?

  Experiencing diminishing marginal returns
• In the table, why does marginal product initially increase before decreasing?

  Law of diminishing returns sets in
• What assumption is made about the firm's market when prices are constant?

  Operating in perfect competition
• In perfect competition, what is the relationship between price, average revenue, and marginal revenue?

  Price equals average revenue equals marginal revenue
• If the marginal product of a worker is 6 and the marginal revenue is 20, what is the marginal revenue product?

  120
• What two variables are plotted on the axes of the marginal revenue product curve?

  Wage/output on y-axis, workers on x-axis
• What does the marginal revenue product curve represent for an individual firm?

  The demand curve for labor
• Why is the marginal revenue product curve shaped the way it is?

  Law of diminishing marginal returns
• Why might MRP increase for the first few workers?

  Specialization gains and excess resources
• Why does MRP decrease for workers after the first few?

  Constraints of fixed production factors
• What does it mean for a firm to be a wage taker?

  No control over the wage paid
• If the wage rate is 60, how many workers should the firm employ according to the MRP curve?

  Five
• In this scenario, what is the marginal cost of labor for each worker?

  The wage rate
• What is the condition for firms to maximize revenue from workers?

  MRP equals wage
• Why does it not make sense to hire a worker when their cost exceeds their MRP?

  The firm will lose money
• Why should firms continue to hire workers as long as MRP is greater than the wage?

  Revenue brought in is higher than cost
• What does it mean if a firm hires workers up to the point where MRP equals the wage?

  They've made an efficient employment decision
• How does the law of diminishing marginal returns affect marginal product?

  • Initially, marginal product increases with each additional worker due to specialization and efficient use of resources.
  • However, as more workers are added while other factors of production (like capital and land) remain fixed, the marginal product eventually decreases.
• What are the key differences between product markets and labor markets?

  • Product Markets: Focus on the exchange of goods and services between firms and consumers. Demand comes from consumers; supply from firms.
  • Labor Markets: Focus on the exchange of labor services. Demand comes from firms (employers); supply from individuals (workers).
• What conditions define a perfectly competitive labor market?

  • Numerous firms and workers, none of whom have the power to influence the market wage rate.
  • Workers are homogenous and have perfect information about job opportunities.
  • Firms are wage takers and must accept the market wage.
• How can the MRP curve be used to determine the profit-maximizing number of workers to hire?

  • Compare the MRP of each worker to the market wage rate (marginal cost of labor).
  • Hire workers up to the point where MRP equals the wage rate.
  • Hiring beyond this point would result in MRP being less than the wage, decreasing profits.