Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 The Economics of Labor Markets
Chapter 18 of 36 The Markets for the Factors of Production
Section 9 of 20
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In this case the market wage for apple pickers is $500 per week.
Per Table 1, hiring the first three workers is profitable
· the first worker yields $1,000 in revenue, and $500 in profit
· the second worker yields $800 in additional revenue, and $300 in profit
· the third worker yields $600 in additional revenue, and $100 in profit
After the third worker, hiring workers becomes unprofitable.
· the fourth worker would yield only $400 in additional revenue and create $100 in losses
· the fifth worker would yield only $300 in additional revenue and create $300 in losses
So, the firm hires only 3 workers.
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Figure 3 is a graph of the value of the marginal product.
The curve slopes downward because
· the marginal product of labor, column 3
· diminishes as the number of workers rises, column 1
The figure includes a horizontal line at the market wage, here $500.
To maximize profit, the firm hires workers up to the point where the two curves cross.
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With less than 3 workers level of employment
· the value of the marginal product is more than the wage
· hiring another worker would increase profit
With more than 3 workers level of employment
· the value of the marginal product is less than the wage
· hiring another worker would decrease profit
So, a competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage.
That point here is 3 workers and $500 wage.
As a result, for a competitive, profit-maximizing firm the value of marginal product curve is the firm’s labor demand curve.
… …
horizontal line and downward sloping line
suihei sen to migi sagari no chokusen
水平線と右下がりの直線
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