the firm in pc labor markets. objective(s) 3. students should be able to explain why a firm hires...
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![Page 1: The Firm in PC Labor Markets. Objective(s) 3. Students should be able to explain why a firm hires labor until MFC=MRPL and identify this point on a cost](https://reader036.vdocument.in/reader036/viewer/2022062516/56649dde5503460f94ad70a0/html5/thumbnails/1.jpg)
The Firm in PC Labor Markets
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Objective(s)
• 3. Students should be able to explain why a firm hires labor until MFC=MRPL and identify this point on a cost chart and the graph of a factor market.
• 5. Students should be able to graph the supply and demand of perfectly competitive labor firms and specifically recognize:– that the demand curve is derived from MRPL. – that the supply curve (MFC) is set by the market.– that the intersection of MFC and MRPL represents
the profit maximization quantity of labor. – that certain variables can cause shifts in the supply
and demand of labor firms.
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A review…
• How many graphs are needed to show changes to a PC firm that produces and sells its goods in a PC Market?
• 2! One for the market and one for the firm.
• The firm is a “Price-Taker”.
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PC Firm’s Take their Wage from the PC Labor Market
PC LABOR MARKET
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We are studying Perfectly Competitive Labor Markets
PC Labor Markets
• Many Firms- No Barriers to Entry
• Firms are Wage Takers
• Firms are DEMANDERS
PC Product Markets
• Many Firms- No Barriers to Entry
• Firms are Price Takers
• Firms are SUPPLIERS
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What is marginal cost?
• The cost of increasing output by one unit.
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Marginal Factor Cost (MFC)
• The cost of each additional factor employed by a firm. With labor, it is:
• Change in Total Factor Cost of Laborers
Change in Laborers
• This equals wage in the PC industry
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So if this is my situation…
Laborers Total Factor
Cost
Marginal Factor
Cost
1 20
2 40
3 60
4 80
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The firm is a “Wage-Taker”
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The Wage in a PC Firm • The Equilibrium
Wage in the PC Labor Market Sets the Wage for the PC Firm
• Firms are “wage-takers”
• The Eq. Wage = MFC = Supply for the firm
Wages
Quantity of Laborers
S= MFC
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Recall: What is MRP?
MRP: Marginal Revenue Product of Labor. What is it?
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Marginal Revenue Product of Labor (MRP)
MRP= MPL (Marginal Product of Labor)X
P (Price of the Good)
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The Firm’s Demand Curve &The Market Demand for Laborers
• The market’s demand for labor is equal to all firms in the market’s demand for labor.
•
• The firm hires workers at a wage that does not exceed their marginal revenue product of labor.
D= MRP
Wages
Quantity of Laborers
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If the Product Price is $2 and the Wage is $20 then how many workers should this PC Firm hire?
Explain.
Laborers Output Marginal
Product of Labor
Marginal Revenue Product
Wage=
MFC
1 15 15 $30 $20
2 29 14 $28 $20
3 42 13 $26 $20
4 50 8 $16 $20
5 55 5 $10 $20
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Recall: Why is profit maximized when MR=MC?
PC Firm Monopoly
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Supply and Demand for a Firm in a PC Labor Market
• Demand is equal to MRP
• You maximize Profit/ Minimize Costs where MFC=MRP– Hire workers
until MFC=MRP– Hire less if
MRP < MFC– Hire more if
MRP > MFC
S=MfC
Wage
Quantity of Laborers
D=MRp
Eq.W
Eq. Q
Add the MRP curve
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The Whole Thing Together
PC Labor Market PC Firm in Labor Market
Compare and contrast PC Labor markets and firms to PC Product market and firms.
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Practice…1. How many workers should this firm hire?
2. How do you know this?Price= $10 Wage=$60
Labor Units
Total Output
Marginal Product of Labor
MRP MFC
1 5
2 20
3 30
4 35
5 35