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Lec_17_labor_demand

# Lec_17_labor_demand - Chapter 13 Labor Markets Poverty and...

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1 Second exam will cover only Chapters 10- 12 Final exam will be cumulative for entire course Answers to practice second exam will be reviewed in discussion sections week of Fri Nov 4 to Wed Nov 9 An alternative practice exam is also available on the course web page Chapter 13: Labor Markets, Poverty, and Income Distribution A. Demand for labor Joe’s Muffler Shop Inputs: • building • tools • utilities • labor Output: number of mufflers replaced Joe’s shop nets: \$100 for each muffler replaced Question: take building, tools, and utilities fixed, vary labor 9 3 8 2 5 1 Output (mufflers per day) Number of workers Definitions: The marginal product of labor is how much output would increase from hiring one more worker The value of marginal product is how much revenue would increase from hiring one more worker

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2 9 3 8 2 5 1 Output (mufflers per day) Number of workers 9 3 8 2 5 1 Marginal product (mufflers per worker) Output (mufflers per day) Number of workers 1 9 3 3 8 2 5 5 1 Marginal product (mufflers per worker) Output (mufflers per day) Number of workers 1 9 3 3 8 2 5 5 1 Value of marginal product (\$ per worker) Marginal product (mufflers per worker) Output (mufflers per day) Number of workers \$100 1 9 3 \$300 3 8 2 \$500 5 5 1 Value of marginal product (\$ per worker) Marginal product (mufflers per worker) Output (mufflers per day) Number of workers Definition: The tendency of the marginal product of labor to fall as the number of workers hired increases is referred to as diminishing returns to labor
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