Suppose that the employer is hiring workers in a perfectly competitive market where the market equilibrium wage is `$5`.
Graphing window shows horizontal axis: 0 to 14, vertical axis: 0 to 14. Start Graph, Color blue
x
y
0
10
1
8
2
6
3
4
4
2
5
-0
6
-2
7
-4
8
-6
Label "Labor (L)" at pixel coordinates (175,0).Label "Wage (w)" at pixel coordinates (0,170).Label "VMPL" at (1,10-1).
How many workers will be hired at this wage?
Find the wage on the vertical axis and read off the graph how many workers are available to work at that wage.
The table below shows data for the production of beer for an individual firm operating in an imperfectly competitive market.
Number of workers
Number of Oranges
Marginal Revenue
0
0
27
10
40
26
20
72
25
30
96
24
40
112
23
50
120
22
Given this data, complete the table:
Quantity of beer
Marginal Product of Labor (MPL)
Marginal Revenue Product of Labor (MRPL)
0
-
-
10
4
104
20
3.2
80
30
2.4
57.6
40
1.6
36.8
50
0.8
17.6
Marginal product is the additional output of one more worker. Mathematically, Marginal Product is the change in total product divided by the change in labor: MPL = ΔTP/ΔL. Marginal Revenue Product = MPL x MR.
Suppose that a firm has market power in their output market. Suppose that the employer is hiring workers in a perfectly competitive market where the market equilibrium wage is $.
The graph below shows the labor demand curve for this firm.
Note: VMPL stands for Value of the Marginal Product of Labor. MRPL stands for Marginal Revenue Product of Labor.
Graphing window shows horizontal axis: 0 to 30, vertical axis: 0 to 30. Start Graph, Color red
x
y
0
34.167
1
33.167
2
32.167
3
31.167
4
30.167
5
29.167
6
28.167
7
27.167
8
26.167
9
25.167
10
24.167
11
23.167
12
22.167
13
21.167
14
20.167
15
19.167
16
18.167
17
17.167
18
16.167
19
15.167
20
14.167
21
13.167
22
12.167
23
11.167
24
10.167
25
9.167
26
8.167
27
7.167
28
6.167
29
5.167
30
4.167
Start Graph, Color blue
x
y
0
34.167
1
32.167
2
30.167
3
28.167
4
26.167
5
24.167
6
22.167
7
20.167
8
18.167
9
16.167
10
14.167
11
12.167
12
10.167
13
8.167
14
6.167
15
4.167
16
2.167
17
0.167
18
-1.833
19
-3.833
20
-5.833
21
-7.833
22
-9.833
23
-11.833
24
-13.833
Start Graph, Color black
x
y
0
14
1
14
2
14
3
14
4
14
5
14
6
14
7
14
8
14
9
14
10
14
11
14
12
14
13
14
14
14
15
14
16
14
17
14
18
14
19
14
20
14
21
14
22
14
23
14
24
14
25
14
26
14
27
14
28
14
29
14
30
14
Label "Labor (L)" at pixel coordinates (175,0).Label "Wage (w)" at pixel coordinates (0,170).Label "VMPL" at (10,410/12-10). Label "MRPL" at (10,410/12-15).
What is the number of workers that this firm will hire if this firm is selling its output in an imperfectly competitive market?
10.08
For firms with market power in their output market, they choose the number of workers where the going market wage equals the firm's marginal revenue product.
Suppose that a firm DOES NOT have market power in their output market. Suppose that the employer is hiring workers in a perfectly competitive market where the market equilibrium wage is $14.
The graph below shows the labor demand curve for this firm.
Note: VMPL stands for Value of the Marginal Product of Labor. MRPL stands for Marginal Revenue Product of Labor.
Graphing window shows horizontal axis: 0 to 30, vertical axis: 0 to 30. Start Graph, Color red
x
y
0
38.333
1
37.333
2
36.333
3
35.333
4
34.333
5
33.333
6
32.333
7
31.333
8
30.333
9
29.333
10
28.333
11
27.333
12
26.333
13
25.333
14
24.333
15
23.333
16
22.333
17
21.333
18
20.333
19
19.333
20
18.333
21
17.333
22
16.333
23
15.333
24
14.333
25
13.333
26
12.333
27
11.333
28
10.333
29
9.333
30
8.333
Start Graph, Color blue
x
y
0
38.333
1
36.333
2
34.333
3
32.333
4
30.333
5
28.333
6
26.333
7
24.333
8
22.333
9
20.333
10
18.333
11
16.333
12
14.333
13
12.333
14
10.333
15
8.333
16
6.333
17
4.333
18
2.333
19
0.333
20
-1.667
21
-3.667
22
-5.667
23
-7.667
24
-9.667
25
-11.667
26
-13.667
27
-15.667
Start Graph, Color black
x
y
0
19
1
19
2
19
3
19
4
19
5
19
6
19
7
19
8
19
9
19
10
19
11
19
12
19
13
19
14
19
15
19
16
19
17
19
18
19
19
19
20
19
21
19
22
19
23
19
24
19
25
19
26
19
27
19
28
19
29
19
30
19
Label "Labor (L)" at pixel coordinates (175,0).Label "Wage (w)" at pixel coordinates (0,170).Label "VMPL" at (10,460/12-10). Label "MRPL" at (10,460/12-15).
What is the number of workers that would be hired if this firm would be selling its output in a perfectly competitive market?
19.33
Note that since marginal revenue is less than price, the demand for labor for a firm which has market power in its output market is less than the demand for labor for a perfectly competitive firm. As a result, employment will be lower in an imperfectly competitive industry than in a perfectly competitive industry.
The graph below shows the supply and demand curves for labor in a perfectly competitive market.
Graphing window shows horizontal axis: 0 to 13, vertical axis: 0 to 13. Start Graph, Color red
x
y
0
6
1
7
2
8
3
9
4
10
5
11
6
12
7
13
8
14
9
15
10
16
11
17
12
18
13
19
Start Graph, Color blue
x
y
0
10
1
9
2
8
3
7
4
6
5
5
6
4
7
3
8
2
9
1
10
0
11
-1
12
-2
13
-3
Label "Labor (L) in thousands" at pixel coordinates (175,0).Label "Wage (w)" at pixel coordinates (0,170).Label "Demand" at (1,10+1). Label "Supply" at ((13-6)/ 1,11).
What is the equilibrium quantity of workers hired in this market?
thousand
2
The equilibrium in the labor market occurs at the intersection of the demand for labor and the supply of labor.
The graph below shows the supply and demand curves for labor in a perfectly competitive market.
Graphing window shows horizontal axis: 0 to 13, vertical axis: 0 to 13. Start Graph, Color red
x
y
0
4
1
5
2
6
3
7
4
8
5
9
6
10
7
11
8
12
9
13
10
14
11
15
12
16
13
17
Start Graph, Color blue
x
y
0
8
1
7
2
6
3
5
4
4
5
3
6
2
7
1
8
0
9
-1
10
-2
11
-3
12
-4
13
-5
Label "Labor (L) in thousands" at pixel coordinates (175,0).Label "Wage (w)" at pixel coordinates (0,170).Label "Demand" at (1,8+1). Label "Supply" at ((13-4)/ 1,11).
What is the equilibrium wage that will prevail in this market?
$
6
Equilibrium wage is where supply intersects demand curve.
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