Suppose that the employer is hiring workers in a perfectly competitive market where the market equilibrium wage is `$4`.
Graphing window shows horizontal axis: 0 to 14, vertical axis: 0 to 14. Start Graph, Color blue
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10
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8
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-0
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-4
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-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 burritos for an individual firm operating in an imperfectly competitive market.
Number of workers
Number of Textbooks
Marginal Revenue
0
0
20
10
50
19
20
90
18
30
120
17
40
140
16
50
150
15
Given this data, complete the table:
Quantity of burritos
Marginal Product of Labor (MPL)
Marginal Revenue Product of Labor (MRPL)
0
-
-
10
5
95
20
4
72
30
3
51
40
2
32
50
1
15
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
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y
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39.167
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38.167
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37.167
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36.167
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35.167
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34.167
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33.167
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32.167
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31.167
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30.167
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29.167
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28.167
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27.167
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26.167
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25.167
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24.167
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23.167
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22.167
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21.167
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20.167
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19.167
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18.167
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17.167
23
16.167
24
15.167
25
14.167
26
13.167
27
12.167
28
11.167
29
10.167
30
9.167
Start Graph, Color blue
x
y
0
39.167
1
37.167
2
35.167
3
33.167
4
31.167
5
29.167
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27.167
7
25.167
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23.167
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21.167
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19.167
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17.167
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15.167
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13.167
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11.167
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9.167
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7.167
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5.167
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3.167
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1.167
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-0.833
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-2.833
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-4.833
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-6.833
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-8.833
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-10.833
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-12.833
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-14.833
Start Graph, Color black
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y
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16
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16
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16
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16
Label "Labor (L)" at pixel coordinates (175,0).Label "Wage (w)" at pixel coordinates (0,170).Label "VMPL" at (10,470/12-10). Label "MRPL" at (10,470/12-15).
What is the number of workers that this firm will hire if this firm is selling its output in an imperfectly competitive market?
11.58
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 $16.
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
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26.167
9
25.167
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24.167
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23.167
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22.167
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21.167
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20.167
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19.167
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18.167
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17.167
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16.167
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15.167
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14.167
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13.167
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12.167
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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
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22.167
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20.167
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18.167
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16.167
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14.167
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12.167
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10.167
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8.167
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6.167
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4.167
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2.167
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0.167
18
-1.833
19
-3.833
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-5.833
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-7.833
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-9.833
23
-11.833
24
-13.833
Start Graph, Color black
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20
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20
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20
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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 would be hired if this firm would be selling its output in a perfectly competitive market?
14.17
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
4
1
5
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6
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Start Graph, Color blue
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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 ((13-4)/ 1,11).
What is the equilibrium quantity of workers hired in this market?
thousand
3
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
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6
1
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9
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10
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Start Graph, Color blue
x
y
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10
1
9
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5
5
6
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2
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1
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0
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-1
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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 wage that will prevail in this market?
$
8
Equilibrium wage is where supply intersects demand curve.
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