Copyright © 2009 Pearson Education, Inc. 3- 1 Topic 2. Chapters 3 & 4 The Demand for Labor.

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Presentation transcript:

Copyright © 2009 Pearson Education, Inc Topic 2. Chapters 3 & 4 The Demand for Labor

Copyright © 2009 Pearson Education, Inc In the short run, a firm demand workers where MRP L (marginal revenue product) = w (money wage) MP L (marginal product) x P (price of output) = w MP L = w/P (real wage) in a competitive market. A Competitive Firm’s Demand for Labor in the Short Run

Copyright © 2009 Pearson Education, Inc Supervisors Output (Q) MP L MRP L (P =$.50) w/P 0 1, , , , , ,600 Example

Copyright © 2009 Pearson Education, Inc Supervisors Output (Q) MP L MRP L (P =$.50) w/P 0 1, ,800 3,800 1, ,000 3,200 1, ,500 1, , , Example

Copyright © 2009 Pearson Education, Inc Table 3.2: Hypothetical Schedule of Marginal Revenue Productivity of Labor for Store Detectives

Copyright © 2009 Pearson Education, Inc Figure 3.2: Demand for Labor in the Short Run (Money Wages)

Copyright © 2009 Pearson Education, Inc Figure 3.1: Demand for Labor in the Short Run (Real Wage)

Copyright © 2009 Pearson Education, Inc Figure 3.3: Effect of Increase in the Price of One Input (k) on Demand for Another Input (j), where Inputs Are Substitutes in Production

Copyright © 2009 Pearson Education, Inc In the long run, a firm demand workers where MP L / MP K = w/r where w is wage and r is interest rate (price of capital) *Why? MP L x P = w (A) MP K x P = r (B)  (A)/(B) MP L / MP K = w/r A Competitive Firm’s Labor Demand in the Long Run

Copyright © 2009 Pearson Education, Inc Figure 3A.1: A Production Function

Copyright © 2009 Pearson Education, Inc Figure 3A.3: Cost Minimization in the Production of Q * (Wage = $10 per Hour; Price of a Unit of Capital = $20)

Copyright © 2009 Pearson Education, Inc Figure 3A.4: Cost Minimization in the Production of Q * (Wage = $20 per Hour; Price of a Unit of Capital = $20)

Copyright © 2009 Pearson Education, Inc Figure 3.4: The Market Demand Curve and Effects of an Employer-Financed Payroll Tax

Copyright © 2009 Pearson Education, Inc Figure 4.1: Relative Demand Elasticities

Copyright © 2009 Pearson Education, Inc Figure 4.2: Different Elasticities along a Demand Curve

Copyright © 2009 Pearson Education, Inc Figure 4.3: Federal Minimum Wage Relative to Wages in Manufacturing,

Copyright © 2009 Pearson Education, Inc Figure 4.4: Minimum Wage Effects: Growing Demand Obscures Job Loss

Copyright © 2009 Pearson Education, Inc Figure 4.5: Minimum Wage Effects: Incomplete Coverage Causes Employment Shifts

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