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 11 of 20
…
Three factors cause the demand curve for labor to shift:
-1- Unit Price
-2- Technological Progress
-3 - Supply of Other Factors
…
-1- Unit Price
Per Table 1
Starting unit selling price is $10.
Column 4 the value of the marginal product (additional unit produced)
equals column 3 marginal product times the firm's unit price of $10.
With a unit price of $10
· a third worker adds $600 - $500 wages = +$100 to profit
· a fourth worker would subtract $400 - $500 = -$100 from profit
· so, a fourth worker is not hired
…
Per Table 1a
· demand for product increases, unit selling price rises to $15
· Figure 3a demand curve for works shifts right
· column 4 the value of the marginal product
· equals column 3 marginal product times the firm's unit price of $15
With a new higher unit price of $15
· a fourth worker adds $600 - $500 wages = +$100 to profit
· so, a fourth worker is hired
…
An increase in the price of apples raises the value of the marginal product of labor of each worker who picks apples.
Labor demanded by firms that supply apples increases.
… …
unit price
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