Topic 2. Chapters 3 & 4

Copyright © 2009 Pearson Education, Inc. 3- 1

Topic 2. Chapters 3 & 4

The Demand for Labor


In the short run, a firm demand workers where

MRPL (marginal revenue product) = w (money wage)

MPL (marginal product) x P (price of output) = w

MPL = w/P (real wage)

in a competitive market.

A Competitive Firm’s Demand for Labor in the Short Run


Supervisors Output (Q) MPL MRPL (P =$.50) w/P

0 1,000 --- --- ----

1 4,800

2 8,000

3 9,500

4 10,200

5 10,600

Example


Supervisors Output (Q) MPL MRPL (P =$.50) w/P

0 1,000 --- --- ----

1 4,800 3,800 1,900

2 8,000 3,200 1,600

3 9,500 1,500 750

4 10,200 700 350

5 10,600 400 200

Example


Table 3.2: Hypothetical Schedule of Marginal Revenue Productivity of

Labor for Store Detectives


Figure 3.2: Demand for Labor in the Short Run (Money Wages)


Figure 3.1: Demand for Labor in the Short Run (Real Wage)


Figure 3.3: Effect of Increase in the Price of One Input (k) on Demand for Another Input (j),

where Inputs Are Substitutes in Production


In the long run, a firm demand workers where

MPL / MPK = w/r

where w is wage and r is interest rate (price of capital)

*Why?

MPL x P = w (A)MPK x P = r (B) (A)/(B) MPL / MPK = w/r

A Competitive Firm’s Labor Demand in the Long Run


Figure 3A.1: A Production Function


Figure 3A.3: Cost Minimization in the Production of Q*

(Wage = $10 per Hour; Price of a Unit of Capital = $20)


Figure 3A.4: Cost Minimization in the Production of Q*

(Wage = $20 per Hour; Price of a Unit of Capital = $20)


Figure 3.4: The Market Demand Curve and Effects of an Employer-Financed

Payroll Tax


Figure 4.1: Relative Demand Elasticities


Figure 4.2: Different Elasticities along a Demand Curve


Figure 4.3: Federal Minimum Wage Relative to Wages in Manufacturing,

1938-2007


Figure 4.4: Minimum Wage Effects: Growing Demand Obscures Job Loss


Figure 4.5: Minimum Wage Effects: Incomplete Coverage Causes

Employment Shifts

Topic 2. Chapters 3 & 4

Documents

Transcript of Topic 2. Chapters 3 & 4