Price of Labor S1 02 S2 MRPL DL Li L2 Quantity of Labor A Shift in the Supply of Labor
A Shift in the Supply of Labor
When the supply of labor facing the firm is S,the firm hires L units of labor at wage w.But when the market wage rate decreases and the supply of labor shifts to S2,the firm maximizes its profit by moving along the demand for labor curve until the new wage rate w2 is equal to the marginal revenue product of labor. As a result,Lz units of labor are hired
When the supply of labor facing the firm is S1 , the firm hires L1 units of labor at wage w1 . But when the market wage rate decreases and the supply of labor shifts to S2 , the firm maximizes its profit by moving along the demand for labor curve until the new wage rate w2 is equal to the marginal revenue product of labor. As a result, L2 units of labor are hired
Wage (dollars per hour) 20 15 10 MRPLI MRPL2 5 40 80 120 160 Hours of Work Firm's Demand Curve for Labor (with Variable Capital)
Firm’s Demand Curve for Labor (with Variable Capital)
When two or more inputs are variable,a firm's demand for one input depends on the marginal revenue product of both inputs. When the wage rate is $20,A represents one point on the firm's demand for labor curve
When two or more inputs are variable, a firm's demand for one input depends on the marginal revenue product of both inputs. When the wage rate is $20, A represents one point on the firm's demand for labor curve
When the wage rate falls to $15,the marginal product of capital rises,encouraging the firm to rent more machinery and hire more labor. As a result,the MRPL curve shifts from MRPLI to MRPL2, generating a new point C on the firm's demand for labor curve. Thus A and C are on the demand for labor curve,but B is not
When the wage rate falls to $15, the marginal product of capital rises, encouraging the firm to rent more machinery and hire more labor. ` As a result, the MRPL curve shifts from MRPL1 to MRPL2 , generating a new point C on the firm's demand for labor curve. Thus A and C are on the demand for labor curve, but B is not