1.3: Labor Market (3.2 & 3.4)

Question 1

To maximize profit, firms will continue to hire additional labor until ….

Answer 1

benefit of an extra worker = cost (wage)

Question 2

marginal revenue product of labor (MRPN)

Answer 2

measures the benefit of employing an additional worker in terms of the extra revenue produced

MRPN = P x MPN

marginal revenue product of labor = price of ouput (P) X extra output gained by adding the worker (MPN)

Question 3

all else being equal, a decrease in the real wage (lowers, raises) the amount of labor demanded.

Answer 3

raises

Question 4

aggregate demand for labor

Answer 4

sum of the labor demands of all firms in the economy

Question 5

a temporary adverse supply shock (increases/decreases) the marginal product of labor at _______ level of employment

Answer 5

a temporary adverse supply shock DECREASES the marginal product of labor at EVERY level of employment

Question 6

full employment output/potential output

Answer 6

level of output that firms in the economy supply when wages and prices have fully adjusted

Y* = AF (K,N*)

for constant capital stock, K, full-employment output is determined by (1) full employment level of employment (N*) and the production function relating output to employment