Due to increased law and order issues in a country, the government decides to hire more people to the police. Analyse the effect of this action in the labour market.
Answers
Explanation:
Key Points
Firms will hire more labor when the marginal revenue product of labor is greater than the wage rate, and stop hiring as soon as the two values are equal.
The point at which the MRPL equals the prevailing wage rate is the labor market equilibrium.
The marginal decision rule says that a firm will shift spending among factors of production as long as the marginal benefit of such a shift exceeds the marginal cost.
If the marginal benefit of additional labor, MPL/PL, exceeds the marginal cost, MPK/PK, then the firm will be better off by spending more on labor and less on capital.
According to the marginal decision rule, equilibrium in the labor market must occur where MPL/PL=MPK/PK.
Key Terms
marginal product: The extra output that can be produced by using one more unit of the input.
marginal revenue product: The change in total revenue earned by a firm that results from employing one more unit of labor.
capital: Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).
The labor market differs somewhat from the market for goods and services because labor demand is a derived demand; labor is not desired for its own sake but rather because it aids in producing output. Firms determine their demand for labor through a lens of profit maximization, ultimately seeking to produce the optimum level of output and the lowest possible cost.
Labor Market
Answer:
YO! BIDOO LOG
- Firms will hire more labor when the marginal revenue product of labor is greater than the wage rate, and stop hiring as soon as the two values are equal.
- The point at which the MRPL equals the prevailing wage rate is the labor market equilibrium.
- The marginal decision rule says that a firm will shift spending among factors of production as long as the marginal benefit of such a shift exceeds the marginal cost.
- If the marginal benefit of additional labor, MPL/PL, exceeds the marginal cost, MPK/PK, then the firm will be better off by spending more on labor and less on capital.
- According to the marginal decision rule, equilibrium in the labor market must occur where MPL/PL=MPK/PK.
Key Terms
- marginal product: The extra output that can be produced by using one more unit of the input.
- marginal revenue product: The change in total revenue earned by a firm that results from employing one more unit of labor.
- capital: Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).