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Principles of Economics- Mankiw (5th) 388

Principles of Economics- Mankiw (5th) 388 - 400 PA R T S I...

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400 PART SIX THE ECONOMICS OF LABOR MARKETS apples minus the total cost of producing them. The firm’s supply of apples and its demand for workers are derived from its primary goal of maximizing profit. THE PRODUCTION FUNCTION AND THE MARGINAL PRODUCT OF LABOR To make its hiring decision, the firm must consider how the size of its workforce affects the amount of output produced. In other words, it must consider how the number of apple pickers affects the quantity of apples it can harvest and sell. Ta- ble 18-1 gives a numerical example. In the first column is the number of workers. In the second column is the quantity of apples the workers harvest each week. These two columns of numbers describe the firm’s ability to produce. As we noted in Chapter 13, economists use the term production function to describe the relationship between the quantity of the inputs used in production and the quan- tity of output from production. Here the “input” is the apple pickers and the “out- put” is the apples. The other inputs—the trees themselves, the land, the firm’s
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