MRP - DEMAND FOR LABOUR Flashcards
LABOUR MKT MINDSET
Firms demand labour
individuals supply labour
Demand for labour = supply what do we get
equilibrium wage rate
equilibrium quantity of workers
what is demand for labour for an individual firm
- shows us how many workers firms will hire at any given wage rate over given period of time
demand for labour is described as a
derived demand
demand for labour is a derived demand what does this mena
comes from demand for goods and services
when will labour demand be high
only when demand for g/s high q
as demand for labour is only high when demand for g/s is high what does htis mean about fimrs hiring indiivudals
only hire workers as theres a need for workers to produce g/s
Firms wll base demand decision for labour on
Marginal Revenue Product
what is Marginal Revenue Product
extra revenue generated when additional worker is hired
MRP formula
Marginal Physical Product * Marginal Revenue
Marginal Physica Product means
marginal product
data we use when pplotting grpah is for an individul firm in the SR so they are experiencing
LODR
As data we use to plot graph comes from an individual firm experiencing LODR what happens to TPP and MPP
increase intially then decreases due to the LODR as theres a constraint on fixed factors of production
we also assume fimr is operating in a
perfect compeition market
as firm is operating in a perfect competition market they are
price takers
price is equal to
AR
and
MR
as price is equal to MR how else can we calculate MRP
price * marginal physical product of each individual worker
when plotting MRP curve what is on the y axis
wage/output
when plotting MRP what is on the x axis
quantity of workers
MRP =
demand for labour
why does MRP = d
shows at any given wage rate how many workers firms should employ
why is teh MRP kinda shaped liek an upside down U
LODR
Exaplinn why MRP was increasing as we hired 3 workers
brought more rev than previous workers so MRP was increasing
e.g 3rd worker brought in more rev than 2nd
Because of specialisation gains and excess land and capital being utilised
so more productive than previous works so MRP was increasing
After 3rd worker 4,5,6 workers suffer from lower productivity why ?
constraints from FFOP of capital and land become an issue
e.g bump into each otehr as not enough capital
and individual productivity starts to decrease so MRP falls
why is wage rate constnatly 60
because we assume firms are operating in perfectly comp labour market therefore wage takers
as firms operating in perfectly comp they are wage takers what does this mean
no control over wage paid 2 employers
as firms have no contrl over wage paid tehy must take….
so…
Must take wage rate set in industry labour market and give it workers thats why its constant for every worker
wage rate =
marginal cost of labour
Why is wage rate equal to marginal cost of labour
because its constant
explain why age rate = MCL e.g if wage rate is £60
Every time hire worker pay extra £60 which is constant hence marginal cost of labour
MRP can also give us comnditions for
firms to maximise revenue brought in from workers
in terms of MRP where will firms hire up till
MRP = wage
lets say my wage rate is 60 and efficiency of # of workes to hire is 5 why wouldnt it make sens to hire mroe than 5
If hired 6th worker MC higher than MR
, worker Costs more to firm than what brings in via MRP
So no sense as fmr will lose out on rev
So pointless hiring beyond where MRP = W/MCL
ets say my wage rate is 60 and efficiency of # of workes to hire is 5 why wouldnt it make sens to hire less than 5 workers
all workers before 5 bring more rev to frmt han cost MR>MC
so by hiring another worker can bring more rev thn cost ,
firm able to maximise its benefit by hiring more workes up till where MRP=MC/ MRP=WAGE
Before this makes no sense to stop as rev higher cost so firms can bring in mre rev if higher more workers
KEY CONDITION about firm efficient employment decision
to make efficient employment decision should keep hiring workes up till MRP = WAGE i.e MC of labour
