The supply of youthful, (fairly) unskilled labor is relatively high in colleges and college towns.
This leads one to expect that the marginal productivity of such labor is driven to fairly low levels,
and the consequence is low wages. The college itself may be such a major employer of student
labor that it can act as a monopsonist, and reduce the wage below the value of the marginal
product. If students formed a union they might be able to withhold labor, and/or insist on a
minimum wage that is higher than the prevailing wage. They would face the danger, however, of
No. Marginal productivity determines the demand schedule for labor, but the actual wage is
determined by the interaction of supply with that demand schedule. Since college teaching
appears to be an attractive profession, the supply of potential teachers is ample, and the wage
therefore not very high. Put differently, the wage is equal not to the average productivity but to
the marginal product, and if there are many teachers the marginal product can be driven down to
a relatively low level.
Number of Chefs
Pizzas per Day
when P = $9
when P = $12
(a) The MPP schedule is in the third column.
(b) The fourth column contains the MRP schedule, when pizzas sell for $9.
(c) If the wage rate is $100, the pizza parlor hires 3 chefs. It would not pay to hire the fourth,
because the wage would exceed the MRP. If the wage rose to $125, employment would still
be 3 chefs.
(d) If the price of pizzas is $12, the MRP schedule, which is the derived demand schedule for
chefs, is shown in the fifth column. At a wage of $100, the firm hires 4 chefs, and at a wage of
$125, employment would be cut to 3 chefs.
4. Going to college entails considerable expenses—the out of pocket expenses for tuition, books, etc.,
plus the opportunity cost of earnings forgone. On the other hand, going to college today is likely
to lead to higher earnings in the future. If the future improved earnings are greater in money
terms than the current expenses, then one can compute a rate of interest which, when used to
discount the future earnings, would make them equal to the current expenses. This is the