Topic 2. Chapters 3 & 4

1. Topic 2. Chapters 3 & 4 The Demand for Labor

2. A Competitive Firm’s Demand for Labor in the Short Run In the short run, a firm demand workers where MRPL (marginal revenue product) = w (money wage) MPL (marginal product) x P (price of output) = w MPL = w/P (real wage) in a competitive market.

3. Example Supervisors Output (Q) MPL MRPL (P =$.50) w/P 0 1,000 --- --- ---- 1 4,800 2 8,000 3 9,500 4 10,200 5 10,600

4. Example Supervisors Output (Q) MPL MRPL (P =$.50) w/P 0 1,000 --- --- ---- 1 4,800 3,800 1,900 2 8,000 3,200 1,600 3 9,500 1,500 750 4 10,200 700 350 5 10,600 400 200

5. Table 3.2: Hypothetical Schedule of Marginal Revenue Productivity of Labor for Store Detectives

6. Figure 3.2: Demand for Labor in the Short Run (Money Wages)

7. Figure 3.1: Demand for Labor in the Short Run (Real Wage)

8. Figure 3.3: Effect of Increase in the Price of One Input (k) on Demand for Another Input (j), where Inputs Are Substitutes in Production

9. A Competitive Firm’s Labor Demand in the Long Run In the long run, a firm demand workers where MPL / MPK = w/r where w is wage and r is interest rate (price of capital) *Why? MPL x P = w (A) MPK x P = r (B)  (A)/(B) MPL / MPK = w/r

10. Figure 3A.1: A Production Function

11. Figure 3A.3: Cost Minimization in the Production of Q* (Wage = $10 per Hour; Price of a Unit of Capital = $20)

12. Figure 3A.4: Cost Minimization in the Production of Q* (Wage = $20 per Hour; Price of a Unit of Capital = $20)

13. Figure 3.4: The Market Demand Curve and Effects of an Employer-Financed Payroll Tax

14. Figure 4.1: Relative Demand Elasticities

15. Figure 4.2: Different Elasticities along a Demand Curve

16. Figure 4.3: Federal Minimum Wage Relative to Wages in Manufacturing, 1938-2007

17. Figure 4.4: Minimum Wage Effects: Growing Demand Obscures Job Loss

18. Figure 4.5: Minimum Wage Effects: Incomplete Coverage Causes Employment Shifts