6.3 perfectly competitive labour markets

Question 1

what conditions would the perfectly competitive labour market have to meet at the same time.

Answer 1

contain a large number of buyer and seller, who both are unable to effect the ruling market wage rate

perfect information

free barriers to entry/exit in the long run for employer and sellers

Question 2

are perfectly competitive labour markets viable in the real world

Answer 2

no, closest is fruit pickers in same region and same number of orchards

this is because workers have different skills, productivity and demand differs for differnent workers so differences in wage rates do exist.

Question 3

what is the average cost of labour

Answer 3

total wage costs divided by no. of employees

Question 4

what is marginal cost of labour

Answer 4

the adding to a firms total costs by adding one more worker

Question 5

what relation does marginal/ average cost of labour have to one firms labour demand and supply diagram

Answer 5

marginal= average= supply as each firm is price taker

Question 6

how do firms maximise profits in perfectly competitive labour markets?

Answer 6

each firm would have to demand labour up until MRPL = MCL OR