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Topic 2. Chapters 3 & 4

Topic 2. Chapters 3 & 4. The Demand for Labor. A Competitive Firm’s Demand for Labor in the Short Run. In the short run, a firm demand workers where MRP L (marginal revenue product) = w (money wage) MP L (marginal product) x P (price of output) = w MP L = w/P (real wage)

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Topic 2. Chapters 3 & 4

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  1. Topic 2. Chapters 3 & 4 The Demand for Labor

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

  3. Example 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

  4. 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

  5. Table 3.2: Hypothetical Schedule of Marginal Revenue Productivity of Labor for Store Detectives

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

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

  8. 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

  9. A Competitive Firm’s Labor Demand in the Long Run 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

  10. Figure 3A.1: A Production Function

  11. Figure 3A.3: Cost Minimization in the Production of Q* (Wage = $10 per Hour; Price of a Unit of Capital = $20)

  12. Figure 3A.4: Cost Minimization in the Production of Q* (Wage = $20 per Hour; Price of a Unit of Capital = $20)

  13. Figure 3.4: The Market Demand Curve and Effects of an Employer-Financed Payroll Tax

  14. Figure 4.1: Relative Demand Elasticities

  15. Figure 4.2: Different Elasticities along a Demand Curve

  16. Figure 4.3: Federal Minimum Wage Relative to Wages in Manufacturing, 1938-2007

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

  18. Figure 4.5: Minimum Wage Effects: Incomplete Coverage Causes Employment Shifts

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