$6
MFC
$4
$2
$1
Quantity of Labor
1 2 3 4 5
The document discusses labor markets and key concepts including:
- Marginal revenue product (MRP) determines a worker's contribution to total revenue.
- The demand curve for labor shows quantities firms will hire at different wage rates. MRP is the firm's labor demand curve.
- The supply curve of labor shows quantities workers will offer at different wage rates. The market supply is the sum of individual supply curves.
- A monopsonist faces the industry supply curve and pays the same wage, so its marginal factor cost (MFC) exceeds the supply curve
This document summarizes key concepts about labor markets from an economics textbook. It discusses factors of production and how the demand for labor is derived from the demand for output. It then explains how firms determine the optimal quantity of labor to hire by equating the marginal product of labor to the wage according to the principle of profit maximization. Labor supply and demand determine the equilibrium wage in competitive markets. The document also briefly discusses land, capital, and productivity.
Module 1 introduction to labour markets & labour market institution finalJinha
This document provides an introduction to labour markets and labour market institutions. It discusses the history of labour protection and labour movements. It also defines key concepts in labour economics like labour markets and labour market indicators. Furthermore, it outlines current debates on the relationship between labour market rigidity and unemployment. Specifically, it discusses whether labour market rigidity is truly to blame for high unemployment. Finally, it introduces the concept of "flexicurity," which aims to balance labour market flexibility with security for workers.
1) Aggregate demand is the total demand for goods and services in an economy, including household spending, investment spending, government spending, exports and imports.
2) A rise in the price level causes aggregate demand to contract as real incomes fall, exports become less competitive, and interest rates may rise.
3) Shifts in aggregate demand, caused by factors like fiscal policy changes, monetary policy changes, or external economic events, impact the overall level of output in an economy.
The document discusses the demand for labor from the perspective of individual firms and the overall labor market. It explains that in the short-run, a firm's demand for labor (its marginal revenue product curve) depends on the marginal product of labor. In the long-run, when both capital and labor are variable, firms will substitute between the two inputs in response to wage changes. The market demand for labor is less elastic than the sum of individual firm demands, due to product price effects. The elasticity of labor demand depends on factors like the elasticity of product demand and the share of labor costs in total costs.
Macroeconomics deals with the economy as a whole, examining aggregates like total income, output, employment and prices. It emerged as a separate field of study due to Keynes' analysis of the Great Depression when existing theories failed to explain high unemployment. The circular flow model illustrates how income and spending circulate between producers and consumers in an economy.
The theory of comparative advantage, first developed by English economist David Ricardo in 1817, is a theory about the potential gains from trade for companies, countries or people that arise on account of differences in factor endowments or technological progress.
This document summarizes factors that influence wage determination in labor markets, including supply and demand, trade unions, government intervention, and discrimination. Key points include:
- Supply and demand are primary determinants of wages, with wages rising or falling based on labor demand changes.
- Economic rent and transfer earnings also impact wages. Workers earn more economic rent the more inelastic the labor supply.
- Trade unions aim to increase member wages through collective bargaining, creating a new higher minimum supply curve. This raises wages but reduces employment.
- Government policies like minimum wage legislation and anti-discrimination laws also impact wages.
- Discrimination against groups lowers their wages below true market rates due to prejudices about their productivity
The document provides information about terms of trade including:
- Terms of trade measures the price of a country's exports relative to its imports. It is calculated as the index of export prices divided by the index of import prices.
- Types of terms of trade include net barter, gross barter, income, single factorial, double factorial, real cost, and utility terms of trade. Each type has strengths and limitations in measuring trade.
- Factors influencing terms of trade include the elasticity of demand and supply for exports and imports, as well as the relative size of demand for exports and imports. Changes in terms of trade can impact standards of living, import prices, and a country's balance of payments.
This document summarizes key concepts about labor markets from an economics textbook. It discusses factors of production and how the demand for labor is derived from the demand for output. It then explains how firms determine the optimal quantity of labor to hire by equating the marginal product of labor to the wage according to the principle of profit maximization. Labor supply and demand determine the equilibrium wage in competitive markets. The document also briefly discusses land, capital, and productivity.
Module 1 introduction to labour markets & labour market institution finalJinha
This document provides an introduction to labour markets and labour market institutions. It discusses the history of labour protection and labour movements. It also defines key concepts in labour economics like labour markets and labour market indicators. Furthermore, it outlines current debates on the relationship between labour market rigidity and unemployment. Specifically, it discusses whether labour market rigidity is truly to blame for high unemployment. Finally, it introduces the concept of "flexicurity," which aims to balance labour market flexibility with security for workers.
1) Aggregate demand is the total demand for goods and services in an economy, including household spending, investment spending, government spending, exports and imports.
2) A rise in the price level causes aggregate demand to contract as real incomes fall, exports become less competitive, and interest rates may rise.
3) Shifts in aggregate demand, caused by factors like fiscal policy changes, monetary policy changes, or external economic events, impact the overall level of output in an economy.
The document discusses the demand for labor from the perspective of individual firms and the overall labor market. It explains that in the short-run, a firm's demand for labor (its marginal revenue product curve) depends on the marginal product of labor. In the long-run, when both capital and labor are variable, firms will substitute between the two inputs in response to wage changes. The market demand for labor is less elastic than the sum of individual firm demands, due to product price effects. The elasticity of labor demand depends on factors like the elasticity of product demand and the share of labor costs in total costs.
Macroeconomics deals with the economy as a whole, examining aggregates like total income, output, employment and prices. It emerged as a separate field of study due to Keynes' analysis of the Great Depression when existing theories failed to explain high unemployment. The circular flow model illustrates how income and spending circulate between producers and consumers in an economy.
The theory of comparative advantage, first developed by English economist David Ricardo in 1817, is a theory about the potential gains from trade for companies, countries or people that arise on account of differences in factor endowments or technological progress.
This document summarizes factors that influence wage determination in labor markets, including supply and demand, trade unions, government intervention, and discrimination. Key points include:
- Supply and demand are primary determinants of wages, with wages rising or falling based on labor demand changes.
- Economic rent and transfer earnings also impact wages. Workers earn more economic rent the more inelastic the labor supply.
- Trade unions aim to increase member wages through collective bargaining, creating a new higher minimum supply curve. This raises wages but reduces employment.
- Government policies like minimum wage legislation and anti-discrimination laws also impact wages.
- Discrimination against groups lowers their wages below true market rates due to prejudices about their productivity
The document provides information about terms of trade including:
- Terms of trade measures the price of a country's exports relative to its imports. It is calculated as the index of export prices divided by the index of import prices.
- Types of terms of trade include net barter, gross barter, income, single factorial, double factorial, real cost, and utility terms of trade. Each type has strengths and limitations in measuring trade.
- Factors influencing terms of trade include the elasticity of demand and supply for exports and imports, as well as the relative size of demand for exports and imports. Changes in terms of trade can impact standards of living, import prices, and a country's balance of payments.
This document defines and explains the characteristics of a perfect competition market. Key points include:
- A perfect competition market is one where many small producers sell identical products, meaning buyers have many alternatives and no single seller can influence the market price.
- Main features include homogeneous products, many buyers and sellers, perfect information and mobility of factors of production. Agricultural markets are often used as examples.
- In the short run, firms aim to maximize profits by producing where marginal revenue equals marginal cost. In the long run, firms will exit if earning losses or normal profits and entry will occur if profits are above normal.
- The market equilibrium price is determined by the intersection of total industry demand and supply. Individual
Measuring National Output and National IncomeNoel Buensuceso
The document discusses key concepts related to measuring national output and national income. It defines GDP as the total market value of all final goods and services produced within a country in a given period. GDP can be calculated using the expenditure approach, which sums consumer spending, investment, government spending, and net exports, or the income approach, which sums compensation, profits, interest, and rents. The document also discusses related concepts like GNP, NNP, personal income, and disposable personal income.
Wage Determination and the Allocation of Laborecogeeeeeks
This document discusses theories of wage determination in labor markets including perfectly competitive labor markets, monopsony, and delayed supply responses. In a perfectly competitive labor market, the equilibrium wage and employment are determined by the intersection of supply and demand. A monopsony is a labor market with a single employer, which pays workers less than a competitive wage and hires fewer workers, resulting in inefficiency. Delayed supply responses in some professions can lead to cyclical "cobweb" adjustments as supply lags behind changing demand.
This document defines and explains key macroeconomic concepts related to measuring a nation's income and production. It discusses Gross Domestic Product (GDP) as the total market value of all final goods and services produced within a country in a given period. GDP is calculated using the expenditure and income approaches and is adjusted for inflation using the GDP deflator to determine real GDP. The document also outlines factors that influence GDP growth and limitations of GDP as a measure of economic well-being.
The Cobb-Douglas production function is widely used to model the relationship between output and two inputs, labor and capital. It takes the form of P(L,K) = B*L^α*K^β, where P is total production, L is labor input, K is capital input, B is total factor productivity, and α and β are output elasticities. The function was formulated by Cobb and Douglas based on statistical evidence showing how U.S. output and the two inputs changed together from 1889-1920. It has since been widely applied despite some criticisms around its lack of microeconomic foundations.
The main premise of economic problem is that human needs and wants are unlimited but resources are limited in nature. Thus, scarcity of resources which means that in order to produce one good, you have to sacrifice other good.
The document discusses trends in labor force participation rates in the United States. It describes how Gary Becker expanded the standard work-leisure model to incorporate a household perspective and allow for multiple uses of time. Becker's model recognizes that households produce utility from both market goods purchased with labor income as well as household production using time.
The document then analyzes trends in U.S. population size, labor force participation rates, and hours worked over time. It finds that male participation rates have declined, especially for older males, due to factors like rising incomes, pensions, and disability benefits which encourage earlier retirement. In contrast, female participation has increased due to rising wages, changing social roles and preferences, and technological changes free
1) The document is an introduction to economics that covers topics such as the definition of economics, needs and wants, types of economics (micro and macro), factors of production, the economic problem, utility, and production possibility frontiers.
2) It defines economics as the study of how individuals and societies make choices about scarce resources. It also discusses how people balance needs versus wants.
3) The two main types of economics - microeconomics and macroeconomics - are introduced along with the factors of production needed for an economy.
This document provides an introduction to labour economics. It discusses key concepts such as labour demand and supply, and how they interact in the labour market to determine equilibrium wage and quantity. Labour demand comes from firms and is affected by the wage rate, capital costs and output prices. Firms will maximize profits by hiring workers up to the point where marginal revenue product equals marginal factor cost. Labour supply depends on wages as well as income and substitution effects. The interaction of labour demand and supply curves results in the equilibrium wage and employment level in the market. Monopsony and factors like unions, minimum wages can impact the wage-employment relationship. Unemployment may occur if demand shifts leftward resulting in a surplus of workers.
This document discusses key concepts related to employment and unemployment statistics. It defines employed and unemployed persons based on criteria from household surveys. It also defines and calculates the employment-population ratio and unemployment rate. The document discusses advantages and disadvantages of household surveys. It describes the stock-flow model of labor force transitions and how this impacts unemployment rates. It also defines types of unemployment including frictional, structural, and demand-deficient unemployment.
The document defines the investment multiplier as the ratio of change in national income due to a change in investment. It explains that an initial increase in investment can lead to an even greater increase in national income through subsequent rounds of spending. The multiplier effect is dependent on the marginal propensity to consume. The document also outlines the assumptions, workings, and limitations of the multiplier model.
Theory of consumer behavior cardinal approachTej Kiran
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
The document discusses the Cobb-Douglas production function. It defines the production function and its key inputs of capital, labor, land, and entrepreneurship. It then describes the Cobb-Douglas production function, which studies the relationship between two inputs - labor and capital - and total output. The basic formula for the Cobb-Douglas production function is presented. Properties of the Cobb-Douglas production function like constant returns to scale are explained using a graph. Criticisms of the Cobb-Douglas production function for only considering two inputs and assuming constant returns to scale are also summarized.
This document provides an introduction and overview of labor economics. It discusses key topics including:
- What labor economics studies, including the interaction of workers and employers in labor markets and how this determines wages, employment, and income.
- The microeconomic and macroeconomic techniques used to study labor markets, including individual behavior and interactions between labor markets and other markets.
- The importance of labor economics for understanding socioeconomic issues, its quantitative impact on national income, and unique characteristics of labor.
- How the field has evolved from a more descriptive, historical approach to incorporating applied microeconomic and macroeconomic theory.
1. The document discusses the marginal revenue product (MRP) theory of labour demand, which states that firms will demand labour up to the point where the marginal cost of an additional worker equals the marginal revenue product of that worker.
2. It provides examples to illustrate how marginal revenue product is calculated based on marginal physical product and output price. It also discusses how imperfect competition can impact marginal revenue product.
3. The document then discusses factors that can cause shifts in the demand for labour like changes in product demand, productivity, costs of employing workers, and technology. It also discusses the elasticity of labour demand.
This document discusses the economic concepts of supply and demand. It defines key terms like markets, demand curves, determinants of demand and supply, and equilibrium. It explains how supply and demand interact through examples of how changes in demand or supply can shift the curves and impact equilibrium price and quantity. For example, an increase in demand from hot weather leads to a higher equilibrium price and quantity sold of ice cream.
This document is a chapter on national income accounting and the balance of payments. It discusses key concepts like GNP, GDP, the current account, and the balance of payments. National income accounts track the value of production and expenditure within a nation. The current account balance equals national saving minus domestic investment. A country's balance of payments accounts for payments and receipts with foreigners across three accounts: the current, capital, and financial accounts.
The Cobb-Douglas production function models the relationship between an output and inputs like labor and capital. It assumes outputs increase with inputs but at a decreasing rate. The formula relates the natural log of output to the natural log of inputs with elasticity coefficients representing the percentage change in output from a 1% change in an input. If the coefficients sum to 1 there are constant returns to scale, less than 1 is decreasing returns, and more than 1 is increasing returns. An example using Taiwan agricultural data from 1958-1972 estimated elasticities of 1.5 for labor and 0.4 for capital, indicating increasing returns to scale.
The document summarizes the Heckscher-Ohlin (H-O) theory of international trade. The H-O theory states that countries will export goods that use their abundant and cheap factors of production intensively and import goods that use their scarce factors intensively. It assumes countries differ in their endowments of capital and labor. The theory shows that capital-abundant countries will export and produce capital-intensive goods, while labor-abundant countries will export and produce labor-intensive goods. The theory represents an improvement over previous theories in explaining the basis of trade between countries within a general equilibrium framework.
- Labor markets can be analyzed using supply and demand models. The demand for labor is derived from the demand for the firm's product and depends on the marginal productivity of labor. Firms will hire labor up to the point where the marginal revenue product of labor (MRP) equals the marginal cost of labor (wage).
- The labor supply depends on various factors like the adult population, preferences, and time spent in school. Individuals supply labor to earn income, and the quantity supplied increases with higher wages. In competitive labor markets, firms are price takers and pay the market wage rate.
This document discusses how to reform social insurance programs to better protect workers while promoting job creation. It recommends:
1) Integrating fragmented social insurance programs into a single unified system to improve coverage.
2) Giving individuals more choice over their benefit packages to reduce labor market distortions.
3) Making redistribution more targeted and financed through general revenues rather than payroll taxes to lower costs for firms.
4) Using incentives to encourage voluntary enrollment in social insurance, especially in large informal sectors.
This document defines and explains the characteristics of a perfect competition market. Key points include:
- A perfect competition market is one where many small producers sell identical products, meaning buyers have many alternatives and no single seller can influence the market price.
- Main features include homogeneous products, many buyers and sellers, perfect information and mobility of factors of production. Agricultural markets are often used as examples.
- In the short run, firms aim to maximize profits by producing where marginal revenue equals marginal cost. In the long run, firms will exit if earning losses or normal profits and entry will occur if profits are above normal.
- The market equilibrium price is determined by the intersection of total industry demand and supply. Individual
Measuring National Output and National IncomeNoel Buensuceso
The document discusses key concepts related to measuring national output and national income. It defines GDP as the total market value of all final goods and services produced within a country in a given period. GDP can be calculated using the expenditure approach, which sums consumer spending, investment, government spending, and net exports, or the income approach, which sums compensation, profits, interest, and rents. The document also discusses related concepts like GNP, NNP, personal income, and disposable personal income.
Wage Determination and the Allocation of Laborecogeeeeeks
This document discusses theories of wage determination in labor markets including perfectly competitive labor markets, monopsony, and delayed supply responses. In a perfectly competitive labor market, the equilibrium wage and employment are determined by the intersection of supply and demand. A monopsony is a labor market with a single employer, which pays workers less than a competitive wage and hires fewer workers, resulting in inefficiency. Delayed supply responses in some professions can lead to cyclical "cobweb" adjustments as supply lags behind changing demand.
This document defines and explains key macroeconomic concepts related to measuring a nation's income and production. It discusses Gross Domestic Product (GDP) as the total market value of all final goods and services produced within a country in a given period. GDP is calculated using the expenditure and income approaches and is adjusted for inflation using the GDP deflator to determine real GDP. The document also outlines factors that influence GDP growth and limitations of GDP as a measure of economic well-being.
The Cobb-Douglas production function is widely used to model the relationship between output and two inputs, labor and capital. It takes the form of P(L,K) = B*L^α*K^β, where P is total production, L is labor input, K is capital input, B is total factor productivity, and α and β are output elasticities. The function was formulated by Cobb and Douglas based on statistical evidence showing how U.S. output and the two inputs changed together from 1889-1920. It has since been widely applied despite some criticisms around its lack of microeconomic foundations.
The main premise of economic problem is that human needs and wants are unlimited but resources are limited in nature. Thus, scarcity of resources which means that in order to produce one good, you have to sacrifice other good.
The document discusses trends in labor force participation rates in the United States. It describes how Gary Becker expanded the standard work-leisure model to incorporate a household perspective and allow for multiple uses of time. Becker's model recognizes that households produce utility from both market goods purchased with labor income as well as household production using time.
The document then analyzes trends in U.S. population size, labor force participation rates, and hours worked over time. It finds that male participation rates have declined, especially for older males, due to factors like rising incomes, pensions, and disability benefits which encourage earlier retirement. In contrast, female participation has increased due to rising wages, changing social roles and preferences, and technological changes free
1) The document is an introduction to economics that covers topics such as the definition of economics, needs and wants, types of economics (micro and macro), factors of production, the economic problem, utility, and production possibility frontiers.
2) It defines economics as the study of how individuals and societies make choices about scarce resources. It also discusses how people balance needs versus wants.
3) The two main types of economics - microeconomics and macroeconomics - are introduced along with the factors of production needed for an economy.
This document provides an introduction to labour economics. It discusses key concepts such as labour demand and supply, and how they interact in the labour market to determine equilibrium wage and quantity. Labour demand comes from firms and is affected by the wage rate, capital costs and output prices. Firms will maximize profits by hiring workers up to the point where marginal revenue product equals marginal factor cost. Labour supply depends on wages as well as income and substitution effects. The interaction of labour demand and supply curves results in the equilibrium wage and employment level in the market. Monopsony and factors like unions, minimum wages can impact the wage-employment relationship. Unemployment may occur if demand shifts leftward resulting in a surplus of workers.
This document discusses key concepts related to employment and unemployment statistics. It defines employed and unemployed persons based on criteria from household surveys. It also defines and calculates the employment-population ratio and unemployment rate. The document discusses advantages and disadvantages of household surveys. It describes the stock-flow model of labor force transitions and how this impacts unemployment rates. It also defines types of unemployment including frictional, structural, and demand-deficient unemployment.
The document defines the investment multiplier as the ratio of change in national income due to a change in investment. It explains that an initial increase in investment can lead to an even greater increase in national income through subsequent rounds of spending. The multiplier effect is dependent on the marginal propensity to consume. The document also outlines the assumptions, workings, and limitations of the multiplier model.
Theory of consumer behavior cardinal approachTej Kiran
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
The document discusses the Cobb-Douglas production function. It defines the production function and its key inputs of capital, labor, land, and entrepreneurship. It then describes the Cobb-Douglas production function, which studies the relationship between two inputs - labor and capital - and total output. The basic formula for the Cobb-Douglas production function is presented. Properties of the Cobb-Douglas production function like constant returns to scale are explained using a graph. Criticisms of the Cobb-Douglas production function for only considering two inputs and assuming constant returns to scale are also summarized.
This document provides an introduction and overview of labor economics. It discusses key topics including:
- What labor economics studies, including the interaction of workers and employers in labor markets and how this determines wages, employment, and income.
- The microeconomic and macroeconomic techniques used to study labor markets, including individual behavior and interactions between labor markets and other markets.
- The importance of labor economics for understanding socioeconomic issues, its quantitative impact on national income, and unique characteristics of labor.
- How the field has evolved from a more descriptive, historical approach to incorporating applied microeconomic and macroeconomic theory.
1. The document discusses the marginal revenue product (MRP) theory of labour demand, which states that firms will demand labour up to the point where the marginal cost of an additional worker equals the marginal revenue product of that worker.
2. It provides examples to illustrate how marginal revenue product is calculated based on marginal physical product and output price. It also discusses how imperfect competition can impact marginal revenue product.
3. The document then discusses factors that can cause shifts in the demand for labour like changes in product demand, productivity, costs of employing workers, and technology. It also discusses the elasticity of labour demand.
This document discusses the economic concepts of supply and demand. It defines key terms like markets, demand curves, determinants of demand and supply, and equilibrium. It explains how supply and demand interact through examples of how changes in demand or supply can shift the curves and impact equilibrium price and quantity. For example, an increase in demand from hot weather leads to a higher equilibrium price and quantity sold of ice cream.
This document is a chapter on national income accounting and the balance of payments. It discusses key concepts like GNP, GDP, the current account, and the balance of payments. National income accounts track the value of production and expenditure within a nation. The current account balance equals national saving minus domestic investment. A country's balance of payments accounts for payments and receipts with foreigners across three accounts: the current, capital, and financial accounts.
The Cobb-Douglas production function models the relationship between an output and inputs like labor and capital. It assumes outputs increase with inputs but at a decreasing rate. The formula relates the natural log of output to the natural log of inputs with elasticity coefficients representing the percentage change in output from a 1% change in an input. If the coefficients sum to 1 there are constant returns to scale, less than 1 is decreasing returns, and more than 1 is increasing returns. An example using Taiwan agricultural data from 1958-1972 estimated elasticities of 1.5 for labor and 0.4 for capital, indicating increasing returns to scale.
The document summarizes the Heckscher-Ohlin (H-O) theory of international trade. The H-O theory states that countries will export goods that use their abundant and cheap factors of production intensively and import goods that use their scarce factors intensively. It assumes countries differ in their endowments of capital and labor. The theory shows that capital-abundant countries will export and produce capital-intensive goods, while labor-abundant countries will export and produce labor-intensive goods. The theory represents an improvement over previous theories in explaining the basis of trade between countries within a general equilibrium framework.
- Labor markets can be analyzed using supply and demand models. The demand for labor is derived from the demand for the firm's product and depends on the marginal productivity of labor. Firms will hire labor up to the point where the marginal revenue product of labor (MRP) equals the marginal cost of labor (wage).
- The labor supply depends on various factors like the adult population, preferences, and time spent in school. Individuals supply labor to earn income, and the quantity supplied increases with higher wages. In competitive labor markets, firms are price takers and pay the market wage rate.
This document discusses how to reform social insurance programs to better protect workers while promoting job creation. It recommends:
1) Integrating fragmented social insurance programs into a single unified system to improve coverage.
2) Giving individuals more choice over their benefit packages to reduce labor market distortions.
3) Making redistribution more targeted and financed through general revenues rather than payroll taxes to lower costs for firms.
4) Using incentives to encourage voluntary enrollment in social insurance, especially in large informal sectors.
The document discusses labor markets under conditions of perfect competition for goods and labor. It analyzes how a firm's demand for labor (derived demand) is determined by the marginal revenue product of labor curve. This curve can shift due to changes in productivity or price of the good produced. An increase in either factor causes the curve to shift right and increases labor demand. The firm hires workers up to the point where the wage rate equals marginal revenue product. The document also examines how the firm responds to changes in the market wage rate, hiring more workers if wages decrease and fewer workers if they increase.
Wage concept and wage meaning in variuos actAbhilash Nair
This document defines and discusses various concepts of wages under different Indian labour laws and committees. It discusses definitions of minimum wage, living wage, and fair wage as defined by the 1948 Committee on Fair Wages. Minimum wage is defined as providing bare sustenance and efficiency, while living wage provides basic needs plus some comforts. Fair wage falls between minimum and living wage depending on industry capacity. Payment of Wages Act and Minimum Wages Act definitions of wages include cash payments and some benefits but exclude bonuses and housing. ESI Act definition also includes authorised leave payments.
1) Trade union membership in the UK has declined significantly over the past 30 years from a peak of over 13 million in the late 1970s to around 6.5 million currently.
2) While unions aim to improve wages and conditions for workers, critics argue they distort labour markets and drive up costs for businesses. However, others note unions can also boost productivity and create higher aggregate demand through increased incomes.
3) Many unions have modernized in response to changes in the economy and now often cooperate more with employers on issues like flexibility, skills and competitiveness rather than relying on confrontation.
This document discusses market failure in the labour market. It identifies four potential causes: labour immobility and skills gaps, disincentives to work like poverty and unemployment traps, discrimination, and monopsony power of employers. Labour immobility can arise from occupational and geographical barriers. Disincentives to work include high effective marginal tax rates from losing benefits when income rises. Discrimination reflects prejudice and information failures. Monopsony power allows major employers to pay wages below competitive levels. Government interventions aim to address these market failures through policies like job training, minimum wages, anti-discrimination laws, and reforming taxes and benefits.
This document discusses key concepts in labour markets, including labour supply and demand. It notes that labour demand is derived from the demand for goods and services. The document discusses monopsony labour markets where there is only one buyer of labour. It also covers optimizing hiring by setting the value of marginal product equal to wages. The concept of minimum wage is introduced, noting it aims to protect workers but can increase unemployment.
Wage theories explain how wages are determined. Historically, the subsistence theory viewed wages as only enough to provide basic sustenance. Modern wage theory sees wages as the price of labor set by the interaction of labor demand and supply in the market. Demand for labor depends on factors like productivity, technology, and demand for products, while supply relates to the number of available workers. Under competitive conditions, equilibrium wages are reached at the point where the labor demand and supply curves intersect.
The document discusses various economic and behavioral theories of wages, including:
1) Early wage theories included the wage fund theory (1870-1914) and marginal productivity theory (1914-present), which involve wages being determined by demand and supply of labor.
2) Behavioral theories of motivation include equity theory, expectancy theory, and agency theory, which examine how motivation and wages can align employer and employee goals.
3) Wage differentials refer to differences in pay based on skills, industries, occupations, sectors, regions, and personal characteristics, and aim to incentivize workers.
1. In a competitive labor market, the equilibrium wage and quantity of labor are determined by the intersection of the demand and supply curves for labor.
2. Unions attempt to raise wages by increasing demand or decreasing supply of labor through collective bargaining, featherbedding, and other means.
3. A monopsony employer pays lower wages and hires fewer workers than in a competitive market because it faces an upward-sloping labor supply curve and sets wages where marginal factor cost equals marginal revenue product rather than the competitive equilibrium.
Ingram Micro is the largest global wholesale provider of technology products and services, operating in 36 countries with $30.7 billion in annual sales. In 2000, Ingram Micro focused on improving gross margins and reducing costs, leading to a 77% increase in operating profits despite challenges in sales growth. The company aims to continue enhancing its global distribution network and customer services to maintain its leadership position in the technology supply chain industry.
1) Timken's 2005 annual report summarizes their vision of delivering value to customers through innovative solutions in friction management and power transmission.
2) In 2005, Timken achieved strong financial results including record sales of $5.2 billion and earnings per share of $2.81, nearly double the previous year.
3) Timken's focus on improving costs and productivity, along with investments in high-growth markets like Asia and industrial applications, positions them for continued profitable growth as industrial markets remain strong in 2006.
This document is Timken's 2005 Annual Report which summarizes the company's strong financial performance and growth. The report discusses how Timken's vision of delivering value through friction management and power transmission solutions has guided its expansion into new markets and growth opportunities around the world. Key points include record sales and earnings, investments to support growth, expanding capabilities in aerospace and emerging markets like China, and leadership changes with W.R. Timken stepping down as chairman.
The document discusses various concepts related to production costs, including:
1. It defines costs and different types of costs such as explicit costs, implicit costs, fixed costs, and variable costs.
2. It explains the differences between economic profit and accounting profit, noting that accounting profit ignores implicit costs.
3. It discusses production functions and how diminishing marginal returns can affect total costs in both the short-run and long-run for firms.
1. Factor markets determine the prices or wages paid to labor and other factors of production. The minimum payment a factor requires to remain in its employment is its transfer earnings, while any payment above this minimum is considered economic rent.
2. In a perfectly competitive labor market, the equilibrium wage rate is determined by the intersection of the market supply and demand curves for labor. The demand curve shows the quantity of labor demanded at each wage rate, while the supply curve shows the quantity supplied.
3. A firm's demand for labor is represented by its marginal revenue product (MRP) curve, which shows the additional revenue generated by each additional worker hired. The firm hires workers up to the point where the M
The document discusses strategies for contractors to maximize profits on cost plus contracts through billing practices related to labor rates, equipment rates, overhead allocation, and self-performed work. It provides examples of how contractors can build profits into their billing rates and recommends contract language to define billing terms and limit hidden profit margins. The document also overview Veritas Advisory Group, a construction consulting firm that assists with dispute resolution through cost and schedule analysis.
Here are the answers to identify the resource and shifter:
1. Increase in the demand for microprocessors leads to an increase in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the demand for copper piping to increase.
3. Increase in demand for small homes (compared to big homes) leads to an increase in the demand for lumber.
4. For shipping companies, decrease in price of trains leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to an increase in the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to an increase in demand for skilled labor.
How To Pitch - Genesis Partners (Gil Dibner)Omer Perchik
This document provides guidance on pitching innovations to venture capitalists (VCs). It discusses that pitching to VCs is difficult because they are inherently skeptical and investing other people's money. As such, VCs are looking for startups with strong teams, large market opportunities, defensible technology, competitive positioning, solid execution plans, potential for high returns, and reasonable deal terms. The document provides tips for an effective presentation structure and highlights the importance of demonstrating momentum through progress, user traction, or other validation.
Nicola Wealth Presents Share the Pie: The Art of Building a Winning CultureNicola Wealth
John Nicola, Chairman and CEO of Nicola Wealth, joined Vanessa Flockton, Senior Vice President Advisory Services at Nicola Wealth to explain the art of building a winning company culture through the Share the Pie business model.
Bill Stankeiwicz Copy Scope 2010 Bristlecone Co. StrategyBillStankiewicz
Sara Lee implemented SAP BusinessObjects solutions to gain visibility into their spend data across 19 business units and 22 source systems. This allowed them to aggregate billions in spend across approximately 15 sites and multiple business units. They were able to classify all of their spend into a proprietary taxonomy and perform supplier normalization in just 12 weeks. Leading companies are already benefiting from increased savings, improved processes, and reduced supplier risk through SAP's solutions.
Google: The One Search Engine (and Company) to Rule All OthersScott Moore
Google has grown to dominate the search engine market since its founding in 1998. It expanded beyond search into other businesses like advertising and mobile. Google continues growing its core search and advertising businesses while investing in emerging areas like mobile and display. Maintaining search quality and growing new services internationally will be key to Google's future prospects. Increased competition from Microsoft, Facebook and others poses threats but Google remains well positioned due to its massive scale and financial resources.
A team project for our capstone course for our bachelor's degree. The plan is based upon an actual business entity. I was responsible for the Company Plan and Financial Plan sections, supported research for the Marketing Plan section, and designed and edited the final.
The document is the 2003 annual report of The Timken Company. It summarizes key events and financial results from 2003, a year marked by the largest acquisition in company history with the purchase of The Torrington Company. The acquisition expanded Timken's product lines, services, and global reach but integration challenges impacted financial performance. Top priorities for 2004 include improving performance in the automotive group and addressing high costs in the steel business. The report outlines strategies around customer-driven innovation, performance focus, and adaptive management to take advantage of growing opportunities.
The document is the 2003 annual report of The Timken Company. It summarizes key events and financial results from 2003, a year marked by the largest acquisition in company history with the purchase of The Torrington Company. The acquisition expanded Timken's product lines, services, and global reach but integration challenges impacted financial performance. Top priorities for 2004 include improving performance in the automotive group and addressing high costs in the steel business. The report outlines strategies around customer-driven innovation, performance focus, and adaptive management to take advantage of growing opportunities.
A and c are correct. A public good is a good that, once produced, has two properties: (1) users collectively consume benefits and (2) no one can be excluded.
The document discusses constructing a compensation system with a pay structure. It describes factors like corporate culture and the external environment that affect pay structures. It outlines steps to build a market-competitive pay structure, including job evaluation, salary surveys, grouping jobs into pay grades, pricing grades based on a wage curve, and formulating a rate structure. The goal is to establish internal pay equity while maintaining external competitiveness.
The document discusses constructing a compensation system with a pay structure. It describes factors like corporate culture and the external environment that affect pay structures. It outlines steps to build a market-competitive pay structure, including job evaluation, salary surveys, grouping jobs into pay grades, pricing grades based on a wage curve, and formulating a rate structure. The goal is to establish internal pay equity while maintaining external competitiveness.
The document discusses labor market supply and demand. It provides charts showing hourly wages by country and industry in the US. It explains how equilibrium wage rates and employment levels are determined by the intersection of labor supply and demand curves in a competitive market. It discusses how unions can influence wages by increasing demand for or decreasing supply of union labor.
The marginal product of the third washing station is the change in total output from adding that station. With 2 stations they washed 100 cars. With 3 stations they washed 150 cars. So the change, or marginal product, of adding the third station is 150 - 100 = 50 cars per day.
Externalities like pollution are costs not considered by buyers and sellers. This leads markets to produce inefficiently high pollution. Government intervention can correct market failures, but may also fail if it does not use incentive-based policies like effluent taxes and emissions trading rather than command-and-control regulations. The Coase Theorem finds private bargaining can achieve efficiency if property rights and low transaction costs allow negotiations, though obstacles often remain.
12 income distribution, poverty, and discriminationNepDevWiki
The chapter discusses income distribution and poverty in the United States. It introduces the Lorenz curve as a measure of income inequality, showing that inequality has changed little since 1929. The poverty line is defined as three times the cost of a minimal diet, and around 12-13% of Americans live below this level. Cash transfers like Social Security count towards the poverty line, while in-kind benefits like food stamps do not. Critics argue welfare reduces work incentives and administrative costs are high. Proposed reforms include a negative income tax and workfare programs. Discrimination and lack of equal pay can also impact individuals' wages.
10 monopolistic competition and oligopolyNepDevWiki
Monopolistic competition and oligopoly belong to the category of imperfect competition. Monopolistic competition is characterized by many small sellers, differentiated products, and easy entry and exit. Firms have a negligible effect on price but some control over their own prices. In the short run, firms may earn economic profits, losses, or normal profits, but in the long run normal profits are earned. Oligopoly is characterized by few sellers, homogeneous or differentiated products, and difficult entry. Firms are interdependent and may engage in price leadership, nonprice competition, or form cartels which are prone to cheating. Both market structures allocate resources inefficiently compared to perfect competition.
A monopoly is defined by a single seller facing the entire market demand. It sells a unique product and has extremely high barriers to entry that protect it from competition. Barriers include ownership of essential resources, legal protections like patents or licenses, and economies of scale. A natural monopoly arises when a single firm can produce at a lower average cost than multiple firms due to economies of scale. The monopolist is a price maker that searches its demand curve to find the profit-maximizing price where marginal revenue equals marginal cost. While monopolies may earn long-run profits, their higher prices and lower output compared to competition are economically inefficient.
The key characteristics of perfect competition are:
1) Many small firms
2) Homogeneous (identical) products
3) Free entry and exit from the market
4) Price-taking behavior
The correct answer is b. Perfect competition is characterized by homogeneous (identical) products, not a great variety of different products.
The document summarizes key concepts from consumer choice theory in economics. It discusses the concepts of utility, total utility, marginal utility, diminishing marginal utility, and consumer equilibrium. It explains that consumer equilibrium occurs when the marginal utility per dollar is equal for all goods purchased. This can be used to derive the downward-sloping demand curve, as when price falls, consumption increases to restore equilibrium. The income and substitution effects are also summarized as complementary explanations for the law of demand. When price decreases, these effects work together to increase the quantity demanded.
05 price elasticity of demand and supplyNepDevWiki
Price elasticity of demand measures how responsive quantity demanded is to price changes. It is calculated as the percentage change in quantity divided by the percentage change in price. Elastic demand occurs when this is above 1, inelastic below 1, and unitary elastic at 1. Perfectly elastic demand is horizontal, while perfectly inelastic is vertical. Factors like substitutes, budget share, and adjustment time influence elasticity. Income elasticity measures responsiveness to income changes, while cross elasticity measures responsiveness between related goods. Price elasticity of supply measures responsiveness of quantity supplied to price. Tax incidence depends on demand elasticity, with inelastic demand leading to consumers paying more of the tax.
04a applying supply and demand analysis to health careNepDevWiki
This document discusses the application of supply and demand analysis to healthcare. It contains the following key points:
1) The demand curve for healthcare is downward sloping, as with other goods and services. The supply curve is upward sloping.
2) A copayment is the percentage of the cost of services that consumers pay out of pocket. Higher copayment rates decrease the quantity of healthcare demanded.
3) Shifts in the supply and demand curves for healthcare can be caused by changes in factors like the number of buyers/sellers, incomes, prices of substitutes, and resource prices.
4) An increase in demand leads to an increase in both equilibrium price and quantity, while a
The document provides an overview of key concepts related to supply and demand. It defines the law of demand as stating that there is an inverse relationship between price and quantity demanded, ceteris paribus. It also defines the law of supply as stating that there is a direct relationship between price and quantity supplied, ceteris paribus. The document explains that a change in price results in a movement along the demand or supply curve, while a change in a non-price determinant results in a shift of the entire curve. Market equilibrium exists where quantity demanded equals quantity supplied.
02 production possibilities and opportunity costNepDevWiki
The key concepts from Chapter 2 of the document include:
1) The three fundamental economic questions are what to produce, how to produce, and for whom to produce.
2) Opportunity cost is the best alternative forgone in making a decision and represents the value of the next best choice not selected.
3) A production possibilities curve illustrates the maximum combinations of two goods an economy can produce given scarce resources, and assumes resources and technology are fixed in the short-run.
4) Points inside the curve represent inefficient production, while points on the curve are efficient. The law of increasing opportunity costs and marginal analysis are important concepts relating to the production possibilities curve.
5) Economic growth occurs when
This document contains an appendix that discusses key economic graph concepts:
- It defines direct, inverse, and independent relationships between two variables using graphs with examples.
- It explains the concept of slope and how it can be positive, negative, or variable depending on the shape of the curve.
- It distinguishes between movement along a curve, which occurs when the price changes, versus a shift in the entire curve, which happens when a third variable changes.
The document concludes with an practice quiz that tests understanding of these concepts.
01 introducing the economic way of thinkingNepDevWiki
This chapter introduces key economic concepts such as scarcity, resources, and the difference between microeconomics and macroeconomics. It explains that scarcity exists because human wants are unlimited but resources are limited, forcing individuals and societies to make choices. Resources are categorized as land, labor, and capital. Entrepreneurs organize these resources to produce goods and services. Economics studies how people make choices to satisfy wants. Microeconomics examines individual decision-making units while macroeconomics looks at whole economies. Models are used to understand and predict economic behavior.
13 the phillips curve and expectations theoryNepDevWiki
This document provides an overview of the Phillips Curve and expectations theory. It discusses the short-run and long-run Phillips Curves, and how adaptive and rational expectations theories explain the natural rate model. Adaptive expectations theory suggests that expansionary policies are useless long-run to reduce unemployment, while rational expectations theory indicates policies can be negated by anticipated effects. The document also reviews incomes policies and how different macroeconomic models like monetarism, Keynesianism, supply-side economics and the new classical school approach curing inflation.
The document provides an overview of key concepts in monetary economics from different schools of thought. It discusses the Keynesian, classical, and monetarist views. Specifically, it explains the three motives for holding money according to Keynes as transactions, precautionary, and speculative demand. It also describes the demand for money curve and how the equilibrium interest rate is determined by the intersection of money demand and supply. Changes in the money supply can then affect aggregate demand, output, prices, and employment under different economic models.
80
The money multiplier is 1/required reserve ratio = 1/0.25 = 4
A $1,000 decrease in excess reserves by the Fed would cause a $4,000 decrease in the money supply based on the money multiplier formula. The answer is c.
The document provides an overview of key concepts related to money and the Federal Reserve System. It defines money as anything that serves as a medium of exchange, unit of account, and store of value. It also discusses the functions and properties of money, different types of money including commodity and fiat money, and definitions of the money supply including M1, M2, and M3. Additionally, the summary explains the role of the Federal Reserve System in controlling the money supply and supervising banks, as well as other organizations like the FDIC that insure bank deposits.
09 federal deficits and the national debtNepDevWiki
The national debt is the total amount owed by the federal government to holders of government securities. It has more than tripled since 1980 as a result of accumulating budget deficits. Approximately 17% of the debt is held by foreign entities, representing a burden as it transfers purchasing power overseas. Crowding out occurs when government borrowing to finance deficits causes interest rates to rise, reducing private sector consumption and investment.
This chapter examines decisions made by public sector entities like politicians, bureaucrats and voters. It discusses how government expenditures have grown as a percentage of GDP since the 1950s, primarily due to increased spending on transfer programs. Federal tax revenues, especially individual income and payroll taxes, are the primary source of funding. The US has a lighter tax burden compared to other advanced countries when measured as a percentage of GDP. The chapter also covers principles of taxation like benefits received and ability to pay. It analyzes factors that can lead to inefficient government outcomes under public choice theory.
The document discusses key concepts related to aggregate demand and supply. It explains that the aggregate demand curve shows the level of real GDP purchased in the economy at different price levels. It slopes downward due to the real balance effect, interest rate effect, and net exports effect. The aggregate supply curve shows the level of real GDP produced at different price levels. According to Keynes, a shift in aggregate demand can restore a depressed economy to full employment by increasing real GDP and employment.
2. In this chapter, you will
learn to solve these
economic puzzles:
What determines unions
Howthe NCAAthe wage
Does do labor exploit
influence wagespays?
an employer and
ratecollege athletes?
employment?
2
3. In a Perfectly
Competitive Market,
what determines the
level of Wages?
The intersection of the
demand for labor and
the supply of labor
3
5. What does the Demand
Curve for Labor show?
The different quantities of
labor employers are
willing to hire at different
wage rates in a given time
period, ceteris paribus
5
6. 60 Production Function
50
Total Output
40
30
Total Output
20
10
Quantity of Labor
1 2 3 4 5 6
6
7. What is Marginal
Revenue Product?
The increase in total
revenue to a firm
resulting from hiring an
additional unit of labor or
other variable resource
7
8. 12 Marginal Product Curve
10
Marginal Product
8
6
Law of
4 Diminishing
Returns
2
Quantity of Labor
1 2 3 4 5 6
8
9. What is the Demand
Curve for Labor equal to?
It is equal to the marginal
revenue product of labor
9
10. $350 Demand Curve for Labor
$280 M
RP
$210 =d
em
$140 an
d
$70
1 2 3 4 5Q
10
12. How do we measure MRP
in Perfect Competition?
A perfectly competitive
firm’s marginal revenue
product is equal to the
marginal product of its labor
times the price of its product
12
13. What is
Derived Demand?
The demand for labor and
other factors of production
that depends on the
consumer demand for final
goods and services the
factors produce
13
14. What does the Supply
Curve for Labor show?
The different quantities of
labor workers are willing to
offer employers at different
wage rates in a given time
period, ceteris paribus
14
15. $350 Supply Curve of Labor
Wage Rate per day
$280
S
$210
$140
$70 D
Quantity of Labor
10 20 30 40 50
15
17. What is Human Capital?
The accumulation of
education, training,
experience, and health
that enables a worker
to enter an occupation
and be productive
17
18. $350 Competitive Labor Market
Wage Rate per day
$280
E S
$210
$140
$70 D
Quantity of Labor
10 20 30 40 50
18
19. $350 Competitive Labor Market
$280 Wage Rate per day
E
$210 S
$140
$70 D
Quantity of Labor
1 2 3 4 5
19
30. $350 Collective Bargaining causes
a Wage Rate increase
$280 Wage Rate per day Unemployment
S
$210
$140
$70 D
Quantity of Labor
10 20 30 40 50
30
31. What factors can cause
a change in the
Demand for Labor?
• Unions
• Prices of substitute goods
• Demand for final products
• Marginal product of labor
31
32. What factors can
cause a change in the
Supply for Labor?
• Unions
• Demographic trends
• Expectations of future income
• Changes in immigrations laws
• Education and training
32
33. What has happened to
Union Membership
since WWII?
Union power has declined
33
34. In which sectors has
union membership
increased since 1989?
Public sector and services
34
35. How does union
membership in the
U.S. compare to
other countries?
Union membership is far
below that of other
industrialized countries
35
36. What is a Monopsony?
A labor market in which a
single firm hires labor
36
37. 87%
40%
37%
32%
29%
24%
15%
U.S. Japan CanadaU.K. Germany Italy Sweden
37
38. What is Marginal Factor
Cost (MFC)?
The additional total cost
resulting from a one-
unit increase in the
quantity of labor
38
39. What conclusion can be
drawn from a
Monopsonistic Market?
Because the monopsonist
can hire additional
workers only by raising
the wage rate for all
workers, the MFC > W
39
40. A Monopsonist determines its Wage Rate
$5
$4 Dollars per hour MFC
$3
S
$2
D (MRP)
$1
Quantity of Labor
1 2 3 4 5
40
41. How are wages compared
between the two markets?
A monopsony hires fewer
workers and pays a lower
wage than a firm in a
competitive labor market
41
43. Key Concepts
• In a Perfectly Competitive Market, what deter
• What is Marginal Revenue Product?
• What is the Demand Curve for Labor equal to
• How do we measure MRP in Perfect Competit
• What does the Supply Curve for Labor show?
43
44. Key Concepts cont.
• How do Unions attempt to raise wages?
• What is Featherbedding?
• What is Collective Bargaining?
• What factors can cause a change in the Dema
• What factors can cause a change in the Suppl
44
45. Key Concepts cont.
• What has happened to Union Membership sinc
• How does union membership in the U.S. comp
• What is a Monopsony?
• What is Marginal Factor Cost (MFC)?
• How are wages compared between the
two markets?
45
47. Marginal revenue product (MRP)
is determined by a worker’s
contribution to a firm’s total revenue.
Algebraically, the MRP equals the
price of the product times the
worker’s marginal product (MP).
47
48. The demand curve for labor is
the curve showing the quantities of
labor a firm is willing to hire at
different prices of labor. The
marginal revenue product (MRP) of
labor curve is the firm’s demand
curve for labor. Summing individual
demand for labor curves gives the
market demand curve for labor.
48
49. $350 Demand Curve for Labor
$280 M
RP
$210 =d
em
$140 an
d
$70
1 2 3 4 5Q
49
50. Derived demand means that a
firm demands labor because labor is
productive. Changes in consumer
demand for a product cause changes
in demand for labor and for other
resources used to make the product.
50
51. The supply curve of labor is the
curve showing the quantities of
workers willing to work at different
prices of labor. The market supply
curve of labor is derived by adding
the individual supply curves of labor.
51
52. $350 Supply Curve of Labor
Wage Rate per day
$280
S
$210
$140
$70 D
Quantity of Labor
10 20 30 40 50
52
53. Human capital is the
accumulated people make in
education, training, experience, and
health in order to make themselves
more productive. One explanation
for earnings differences is
differences in human capital.
53
54. Collective bargaining is the
process through which a union and
management negotiate a labor
contract.
54
55. Monopsony is a labor market in
which a single firm hires labor.
Because the monopsonist faces the
industry supply curve of labor and each
worker is paid the same wage, changes
in total wage cost exceed the wage rate
necessary to hire each additional
worker. As a result, the marginal factor
cost (MFC) of labor curve lies above
the supply curve of labor.
55
56. The monopsonist’s wage rate and
quantity of labor are determined where
the MFC equals MRP . Since at this
point the worker’s MRP is greater than
the wage paid, the monopsonist
exploits the workers.
56
57. A Monopsonist determines its Wage Rate
$5
$4 Dollars per hour MFC
$3
S
$2
D (MRP)
$1
Quantity of Labor
1 2 3 4 5
57
59. 1. Marginal revenue product measures the
increase in
a. output resulting from one more unit of
labor.
b. TR resulting from one more unit of
output.
c. revenue per unit from one more unit of
output.
d. total revenue resulting from one more
unit is the increase in total revenue to a
D. MRP of labor.
firm resulting from hiring an additional unit
of labor or other variable resource.
59
60. 2. Troll Corporation sells dolls for $10.00
each in a market that is perfectly
competitive. Increasing the number of
workers from 100 to 101 would cause
output to rise from 500 to 510 dolls per day.
Troll should hire the 101st worker only
when the wage is
a. $100 or less per day.
b. more than $100 per day.
c. $5.10 or less per day.
d. none of the above.
A. Under perfect competition, the firm hires
workers until the MRP equals the wage rate.
MRP equals $10 x MP (510 - 500) = $100.
60
61. 3. Derived demand for labor depends on the
a. cost of factors of production used in the
product.
b. market supply curve of labor.
c. consumer demand for the final goods
produced by labor.
d. firm’s total revenue less economic
profit.
C. If consumers do not purchase goods, there
is no MRP and no workers are hired.
61
62. 4. If demand for a product falls, the
demand curve for labor used to produce
the product will shift
a. leftward.
b. rightward.
c. upward.
d. downward.
A. If consumers demand for a product
decreases and supply remains the
constant, the price of the product falls
and the MRP (P x MP) decreases.
62
63. 5. The owner of a restaurant will hire
waiters if the
a. additional labor’s pay is close to the
minimum wage .
b. marginal product is at the maximum.
c. additional work of the employees adds
more to total revenue than to costs.
d. waiters do not belong to a union.
C. If MRP exceeds the wage rate paid
waiters, it is profitable for the restaurant
to hire more waiters.
63
64. 6. In a perfectly competitive market, the
demand curve for labor
a. slopes upward.
b. slopes downward because of
diminishing marginal productivity.
c. is perfectly elastic at the equilibrium
wage rate.
d. is described by all of the above.
B. As output expands in the short run, a
fixed factor results in diminishing returns
causing MP to decrease. Correspondingly,
MRP decreases.
64
65. 7. A union can influence the equilibrium
wage rate by
a. featherbedding.
b. requiring longer apprenticeships.
c. favoring trade restrictions on
foreign products.
d. all of the above.
e. none of the above.
D. Featherbedding and trade protectionism
increase the demand for labor. Requiring
longer apprenticeship decreases the
demand for labor.
65
66. 8. In which of the following market
structures is the firm not a price taker
in the factor market?
a. Oligopoly.
b. Monopsony.
c. Monopoly.
d. Perfect competition.
B. Monopsony is a labor market in which a
single firm hires labor. For example, the
“company town” where everyone works
for the same employer.
66
67. 9. The extra cost of obtaining each
additional unit of a factor of production
is called the marginal
a. physical product.
b. revenue product.
c. factor cost.
d. implicit cost.
C. The assumption of MFC is that the firm
must pay a higher wage to each additional
worker as well as to all previously hired
workers.
67
68. 10. A monopsonist’s marginal factor cost
curve lies above its supply curve because the
firm must
a. increase the price of its product to sell
more.
b. lower the price of its product to sell more.
c. increase the wage rate to hire more labor.
d. lower the wage rate to hire more labor.
C. The monopsonist can hire an
additional worker only by raising the
wage rate for all workers. Therefore,
the MFC exceeds the wage rate along
the labor supply curve.
68
69. 11. In order to maximize profits, a
monopsonist will hire the quantity of labor
to the point where the marginal factor cost
is equal to
a. marginal physical product.
b. marginal revenue product.
c. total revenue product.
d. any of the above.
B. The MRP curve is the contribution of each
worker to total revenue and MFC the
addition to total cost. When MRP > MFC,
the firm hires more workers.
69
70. Marginal Factor Cost (MFC) and
$10 Marginal Revenue Product (MRP)
$8 Dollars per hour Surplus MFC
$6
$4 Shortage D (MRP)
$2
Quantity of Labor
1 2 3 4 5
70
71. 12. BigBiz, a local monopolist, currently hires
50 workers and pays them $6 per hour. To
attract an additional worker to its labor
force, BigBiz would have to raise the wage
rate to $6.25 per hour. What is BigBiz’s
marginal factor cost?
a. $6.25 per hour.
b. $12.50 per hour.
c. $18.75 per hour.
d. $20.00 per hour.
C. Its total cost would increase by $18.75 to
hire that additional worker (25 x 50 + 6.25).
71
72. 13. Suppose a firm can hire 100 workers at
$8.00 per hour, but must pay $8.05 per hour
to hire 101 workers. Marginal factor cost
(MFC) for the 101st worker is
approximately equal to
a. $8.00.
b. $8.05.
c. $13.05.
d. $13.00.
C. The firm’s total cost would increase $13.05
to hire the 101st worker (.05 x 100 + 8.05).
72
73. 14. A monopsonist in equilibrium has a
marginal revenue product of $10 per worker
hour. Its equilibrium wage rate must be
a. less than $10.
b. equal to $10.
c. greater than $10.
d. equal to $5.
A. Because of its monopoly in the labor
market, a monopsony hires fewer workers
and pays a lower wage than a firm in a
competitive labor market.
73
74. A Monopsonist determines its Wage Rate
$5
$4 Dollars per hour MFC
$3
S
$2
D (MRP)
$1
Quantity of Labor
1 2 3 4 5
74
75. Internet Exercises
Click on the picture of the book,
choose updates by chapter for
the latest internet exercises
75