6.3 Perfectly Competetive Labour Markets Flashcards
What are the conditions for a perfectly competitive labour market?
-large number of buyers and sellers -each unable to influence wage rate(market ruling price)
-operations in conditions of perfect market information
-employers and workers able to enter the labour market in the long run
What is the demand curve of labour the same as?
MRP curve
How much labour can a firm employ in a perfectly competitive labour market?
As much as they want-face a perfectly elastic supply of labour curve in a perfectly competitive labour market
What is the average cost of labour?
Total wage costs/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
For a firm the MC=AC=
Supply of labour demanded
To maximise profit, up to which point should a firm demand labour?
MRP=MC
What does MRP=MC mean
Addition of sales revenue from employment one extra worker=addition of production costs from employing one extra worker
In a perfectly competitive labour market what does marginal cost of labour always equal
The wage paid to the workers
A perfectly competitive firm’s level of employment for labour at each wage rate would be
MRP=W
If MRP>W
More workers should be hired
MRP<W
Fewer workers should be employed
If MRP=W…
Firm is employing the number of workers consistent with profit maximisation
Once market forces operating in the labour market have established a ruling market wage….
Each worker in the labour market is a passive wage-taker at the market-determined wage rate
What does the law of identical goods say?
Goods should sell for the same price in two separate goods markets-the more nearly perfect both markets are
-Applied to labour market, means that perfectly competitive labour markets in equilibrium, workers with the same skills and performing similar tasks should be paid the same wage rates
Diagram of a perfectly competitive firm in a labour market
