Topic 6 - An Introduction to Labour Markets

• Production


  is the conversion of factor inputs into a final output.
• Factors of production


  are the inputs available to produce goods and services in an economy (land, labour, capital, enterprise)
• Wages

  The reward for labour as a factor of production and the cost of employing labour to the firm
• Derived Demand for Labour

  the demand for labour comes from the fact that it is needed to produce another good or service.
• Capital Intensive Production


  is a method of production that uses a high level of capital in comparison to labour
• Labour Intensive Production


  is a method of production that uses a high level of labour in comparison to capital
• Short-run


  a period of time in which at least one factor of production is fixed (usually capital) and therefore the main variable factor of production is labour
• Long-run


  a period of time in which all factors of production are variable and firms can choose the scale of production and mix of resources
• The law of diminishing marginal returns

  A short-run law which states that as additional units of a variable factor of production (usually labour) are added to a fixed factor, marginal output (product) will eventually decrease.
• Productivity


  output per unit of input in a given time period
• Labour Productivity

  output per worker in a given time period
• Factor productivity

  average output of all factors of production
• Returns to scale

  this occurs in the long run when all factors of production are variable. It is the rate at which output increases in response to proportional increases in all inputs.
• Total Revenue (TR)


  the total amount of money a firm receives by selling goods or services. Price x Quantity
• Marginal Revenue (MR)

  the addition to total revenue resulting from the sale of one more unit of output
• Total Physical Product


  The total output of goods produced by a firm from a given quantity of inputs (factors of production)
• Marginal Physical Product (MPP)

  The addition to output that comes when an extra unit of labour (worker) is added
• Marginal Revenue Product of Labour

  The extra revenue gained by the firm from employing one more worker. Firms will only hire workers if they add more to a firm's revenue than they add to its costs. The MRPL curve is also the demand curve for labour as it shows the quantity of labour demanded at each wage rate
• Calculation of MRPL

  Marginal Physical Product X Marginal Revenue