3.6.3 - Perfectly Competitive Labour Markets Flashcards
What conditions must a perfectly competitive labour market meet?
Large number of buyers and sellers.
Price taking abilities.
Perfect market information.
Employers and workers are free to enter the market in the long-run.
Can a perfectly competitive labour market exist in the real world?
No.
It is impossible for all the requirements to be met simultaneously.
What is the closest approximation to perfect competition in the real world?
Fruit pickers in an area with many orchards.
What is the average cost of labour?
Total wage costs divided by the number of workers employed.
What is the marginal cost of labour?
The addition to a firm’s total cost of production resulting from employing one more worker.
What is true about the supply curve of labour in a perfectly competitive labour market?
The supply of Labour = Average Cost of Labour = Marginal Cost of Labour
What can be said about how many workers a firm can employ in perfect competition?
The firm can employ as much as it wants at the ruling market wage.
How do firms maximise profits when selling output produced by labour?
Demand labour up to the point at which:
MRPL = MCL.
Why do firms only employ up the point where MRPL = MCL?
If firms employ more than this total, additional workers would add more to total costs of production than to total revenue.
What should a firm do when MRPL > W?
Employ more workers.
What should a firm do when MRPL < W?
Employ fewer workers.
What should a firm do when MRPL = W?
Nothing, they are maximising profits.
What is the ‘law of one price’?
The same price for an identical good in two separate markets.
How does the ‘law of one price’ apply to perfectly competitive labour markets?
Workers with the same skills and performing the similar tasks should be paid the same wage rates.
