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Econ11Fall2007NotesForLecture_18Nov12

# Econ11Fall2007NotesForLecture_18Nov12 - Lecture XVIII Labor...

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Lecture XVIII, November 12, 2007, Labor & Land Markets I. Demand for Labor by an Individual Firm II. Going from Firm to Labor Market Demand Curves III. Is it “Fair” to Pay Labor its Marginal Revenue Product? IV. The Minimum Wage as a Price Floor V. The Market for Land as in Input to Production I. Demand for Labor by an Individual Firm A. Marginal physical product of labor = MP L B. Marginal physical product falls as you hire more L C. Price x MP L = MRP L = Marginal revenue product D. Golden Rule: Profit maximized if: W=P(MP L )=MRP L Proof: If P = MC = W/MP L to max profit, W=P(MP L )= MRP L II. Going from Firm to Market Labor Demand Curves A. Adding labor Demand Curves Horizontally B. Efficiency and the labor market 1. If labor is paid marginal revenue product everywhere by price taking firms, then value of labor's product to consumers cannot be raised by reallocating labor. 2. Wage = Marginal Revenue Product at each firm if there are two products, A & B: W = P A MPL A = P B MPL B .

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Econ11Fall2007NotesForLecture_18Nov12 - Lecture XVIII Labor...

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