COLEGIO DE LA PURISIMA CONCEPCION

The School of the Archdiocese of Capiz

Roxas City

College of Business, Management and Accountancy

BA 1 – BASIC MICROECONOMICS
First Semester 2020-2021

Name: LIRA S. BALASABAS

Activity 10

1. Explain how a firm’s production function is related to its marginal product of labor, how
a firm’s marginal product of labor is related to the value of its marginal product, and how
a firm’s value of marginal product is related to its demand for labor.

ANSWER:
Firm's production function is related to its marginal product of labor in the way that when
the number of employees rises, the marginal product of labor drops.
The value of the marginal product is gained when the marginal product of labor is
multiplied with the price of the product. When the value of the marginal product of labor
is equal to the wage, a company stops with further process of employment.

The price paid to each factor adjusts to balance the supply and demand for that factor.
Because factor demand reflects the value of the marginal product of that factor, in
equilibrium, each factor is compensated according to its marginal contribution to the
production of goods and services.

2. Explain how the wage can adjust to balance the supply and demand for labor while
simultaneously equaling the value of the marginal product of labor.

ANSWER:
Each company hires workers to the point when the value of the marginal product is equal
to the wage. At that point, the market of labor is in equilibrium. When supply and
demand are in equilibrium, the marginal product of labor equals the wage.

Any event that changes the supply or demand for labour must change the equilibrium
wage and the value of the marginal product by the same amount, because these must
always be equal. For example, if number of workers increases labor supply shifts
upwards and creates a surplus, putting a downward pressure on wage rates and creating a
new equilibrium.