section 6

Question 1

demand for labour

Answer 1

demand for labour is derived from demand for the products that they are used to make. a firm will demand labour only if profits can be increased by employing more workers

Question 2

relationship between households and firms in the two markets

Answer 2

circular

finished goods and services flow form the firms to households, who spend their income on the goods. the housesholds earn the income they spend by selling labour to their employers

Question 3

the theory of marginal revenue productivity (mr)

Answer 3

The theory states that workers will be hired up to the point when the marginal revenue product is equal to the wage rate. If the marginal revenue brought by the worker is less than the wage rate, then employing that laborer would cause a decrease in profit.

Question 4

marginal physical product (MPPl)

Answer 4

is the amount of output produced by each extra worker

Question 5

marginal revenue product of labour (MRPl)

Answer 5

shows a firm how much extra revenue one extra worker can make

Question 6

marginal revenue product of labour formula

Answer 6

MRPl = MPPl x MR
or
marginal revenue product of labour = marginal physical product x marginal revenue productivity

Question 7

MR in a perfectly competitive product market

Answer 7

in a perfectly competitive product market and a perfect competitive labour market, MR = price of goods is constant and therefore the gradient of the MPPl and MRPl curves will be the same

Question 8

what is the MRPl formula in perfect competition

Answer 8

under perfect competition, as MR=AR in the goods market, then the labour market will be MRPl = MPPl x price

Question 9

what does the marginal productivity theory depend on

Answer 9

depends upon blalancing the revenue gained from employing an additional unit of labour against the marginal cost of that unit of labour