Th3.5: Demand for Labour

Question 1

What does the demand curve for labour show?

Answer 1

the quantity of labour that employers would wish to hire at each possible wage rate

Question 2

What is the demand for labour determined by?

Answer 2

marginal revenue product (MRP) - the extra revenue generated by an individual worker

Question 3

The higher the MRP…

Answer 3

the higher the demand for workers

Question 4

What does the law of diminishing marginal productivity mean?

Answer 4

that increasing the number of workers, whilst all other factors are fixed, is likely to increase MRP at first but then cause it to decline

Question 5

Why is the demand for labour assumed to be downward sloping - long run?

Answer 5

in the long run, all productions vary so high wage rate will encourage businesses to use machinery instead of workers

Question 6

Why is the demand for labour assumed to be downward sloping - short run run?

Answer 6

in the short run, firms have fixed levels of capital and so diminishing marginal productivity means that adding extra workers give a lower return so to employ these workers, the wage rate has to fall

Question 7

MRP =

Answer 7

marginal output x price OR the difference in total revenue