Econ Final Ch 18 – Flashcards
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value of the marginal product of labor
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the additional revenue the firm receives from selling the output produced from an additional unit of labor. You can calculate it by multiplying the marginal product of labor by the output price of $10. For example, when the firm goes from one to two workers, the additional output produced is equal to 16 units. Selling each unit for $10 results in a value of the marginal product of labor of $160.
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labor demand curve
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the graphical representation of the relationship between the wage rate and the quantity of labor demanded in a market. The company's demand for labor is the downward-sloping portion of the value of the marginal product of labor curve. This curve shows how much more revenue the company will receive from hiring an additional worker at each labor quantity and, thus, determines how much labor the firm demands at each wage.
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Marginal Product of Labor
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The increase in the amount of output from an additional unit of labor
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Value of the Marginal Product of Labor
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The additional revenue the firm receives from selling the output produced from an additional unit of labor
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Market Labor Supply Curve
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The graphical representation of the relationship between the wage rate and the quantity of labor workers are willing to provide in a market
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Market Labor Demand Curve
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The graphical representation of the relationship between the wage rate and the quantity of labor firms are willing to hire in a market
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What is one explanation for why this labor supply curve is upward sloping?
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The opportunity cost of leisure decreases as wages decrease.
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Suppose that a large number of U.S.actuaries decide to take employment in Europe due to better benefits and work environments at European companies. How does the demand or supply curve shift?
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supply curve shifts up or left
As actuaries leave the U.S. actuarial industry for the European actuarial industry, the labor supply of actuaries in the United States will decrease, shifting the labor supply curve for actuaries to the left.
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As actuaries leave the U.S. actuarial industry for the European actuarial industry, the labor supply of actuaries in the United States will decrease, shifting the labor supply curve for actuaries to the left.
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70%
Workers earn about two-thirds of the total national income in the form of wages and fringe benefits. The rest goes to landowners and to the owners of capital—the economy's stock of equipment and structures—in the form of rent, profit, and interest.
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If firms are competitive and profit maximizing, the demand curve for labor is determined by
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the value of the marginal product of labor.
The value of the marginal product of any input is the marginal product of that input multiplied by the market price of the output. The demand curve for labor is determined by the value of the marginal product of labor; that is, the firm will hire workers up to the point where the value of the marginal product of the final worker is equal to the wage
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A bakery operating in competitive markets sells its output for $20 per cake and hires labor at $10 per hour. To maximize profits, it should hire labor until the marginal product of labor is
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1/2 cake per hour.
.5x20=10
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A technological advance that increases the marginal product of labor shifts the labor ________ curve to the ________.
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demand, right
Technological advances typically raise the marginal product of labor, which, in turn, increases the demand for labor and shifts the labor-demand curve to the right.
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Around 1973, the U.S. economy experienced a significant ________ in productivity growth, coupled with a(n) ________ in the growth of real wages.
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slowdown, slowdown
Around 1973, the U.S. economy experienced a significant slowdown in productivity growth that lasted until 1995. The cause of the productivity slowdown is not well understood, but the link between productivity and real wages is exactly as standard theory predicts. The slowdown in productivity growth from 2.8 to 1.4 percent per year coincided with a slowdown in real wage growth from 2.8 to 1.12 percent per year.
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A storm destroys several factories, thereby reducing the stock of capital. What effect does this event have on factor markets?
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Wages fall, and the rental price of capital rises.
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Suppose that the president proposes a new law aimed at reducing healthcare costs: All Americans are required to eat one apple daily. What happens to the MP of apple pickers?
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no change
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Your enterprising uncle opens a sandwich shop that employs 7 people. The employees are paid $6 per hour, and a sandwich sells for $3.
If your uncle is maximizing his profit, the value of the marginal product of the last worker he hired is____
, and that worker's marginal product is___
sandwiches per hour.
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$6,$2
Because your uncle is maximizing profit, he must be hiring workers such that their wage equals the value of their marginal product. The wage is $6 per hour, so the value of their marginal product must be $6 per hour.
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Leadbelly Co. sells pencils in a perfectly competitive product market and hires workers in a perfectly competitive labor market. Assume that the market wage rate for workers is $150 per day.
Leadbelly should follow this rule to hire the profit-maximizing amount of labor: Hire workers up to the point where the _____ is ____ $150 per day
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value of marginal product, equal to
Leadbelly should hire workers up to the point where the value of the marginal product is equal to the wage of $150 per day.
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Leadbelly Co. sells pencils in a perfectly competitive product market and hires workers in a perfectly competitive labor market. Assume that the market wage rate for workers is $150 per day.
At the profit-maximizing level of output, the marginal product of the last worker hired is 30 boxes of pencils per day.
The price of a box of pencils is
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$5
