2. Labour Markets - Labour Demand & MRP (Firm)

Question 1

What does the demand curve for labour look like for an entire industry?

Answer 1

It is a downward sloping linear demand curve - in truth it should be an identical shape to the MRP for an individual firm but we draw it straight to simplify it

Question 2

What type of relationship is there between wage and quantity of workers and why?

Answer 2

There is an inverse relationship between wage and quantity of workers because in the long-run firms may move towards capital machinery to replace workers if they become comparatively more expensive. Cheaper workers are more competitive in this regard.

Question 3

Essentially what dictates the shape of the MRP curve in the long and short-run?

Answer 3

SR - Law of Diminishing Returns - slopes downLR - Substitutability of labour and capital

Question 4

How does MRP dictate the wage workers get?

Answer 4

Workers with a very high MC will (wage rate) will only be considered for employment if they have an equally high MRP otherwise its financially unwise for the firm.