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100
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Note: In general,
MPL =
dQ
dL
|
$500
500
500
500
500
Marginal Prot
|
$500
300
100
;100
;300
2.3 The Value of Marginal Product and the Demand for Labor
When deciding how many workers to hire, the rm considers how
much prot each worker would bring in.
Because
Prot = Total Revenue ; Total Cost;
the prot from an additional worker is the worker's contribution
to revenue minus the worker's wage.
Value of the Marginal Product the marginal product of an
input times the price of the output:
VMPL = P MPL:
If the wage for workers is $500 per week, the rm will only hire
3 workers.
1. For the rst three workers, the value of the marginal product
is greater than the wage, so the marginal prot from hiring
these workers is positive.
2. For the fourth worker, the value of the marginal product is
lower than the wage, so the marginal prot from hiring this
worker would be negative.
We can show the rm's decision graphically.
1. The value of the marginal product curve will slope downward
because of the diminishing marginal product of labor.
2. The wage is depicted by a horizontal line because the rm is
a price taker in the labor market.
= W=MPL:
= MC :
4 Labor-Market Equilibrium
4.1 Marginal Product in Equilibrium
The wage adjusts to balance the supply and demand for labor.
The wage equals the value of the marginal product of labor.
At the labor market equilibrium, each rm has bought as much
labor as it nds protable at the equilibrium wage.
Thus, any event that changes the supply or demand for labor
must change the equilibrium wage and the value of the marginal
product by the same amount, because these must always be
equal.