This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: If the marginal revenue product (MRP) of labor is equal to the market wage, the firms will be at their optimal point of labor consumption, since buying more labor would mean that the MRP is less than the wage, and buying less labor would mean that the MRP is greater than the wage. If the marginal revenue product of labor is less than the market wage, then the firms are using too much labor, and those firms will probably cut back on the hours they buy until the MRP of labor is equal to the wage. MRP > w : The firm will buy more labor MRP = w : The firm is buying the right amount of labor MRP < w : The firm is buying too much labor Law of Diminishing of Returns Why is this the case, that labor demand is at its optimal point when MRP of labor is equal to the wage? This holds true because of the law of diminishing returns. When a equal to the wage?...
View Full Document
This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.
- Fall '11