econ111411 - Microeconomics November 14th, 2011 Labor...

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November 14 th , 2011 Labor Market Equilibrium: The Orthodox View The market demand and supply for Labor The Big Ideas Orthodox labor economices Companies hire where the value of workers' product, the Marginal Revenue Product, exceeds the wage. Employment rises with higher productivity, prices, and lower wages; it falls with lower productivity, prices, and higher wages. Labor demand depends on Marginal Revenue Product of Labor Three big things: The MRPL is the value of output produced by one more worker. how much MONEY you get out of each additional worker It is the price of output times the marginal product of labor: MRPL = P * MPL Downward sloping because MPL is downward sloping. Smart businesses will hire workers wherever MRPL exceeds the wage They won't hire where MRPL is less than the wage. They hire up to the point where MRPL = Wage or Wage = P * MPL This means the labor demand curve is the MRPL. The Marginal Product is the change in total product with one more worker
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econ111411 - Microeconomics November 14th, 2011 Labor...

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