What factors other than the wage rate influence the demand for labor? How is demand affected by changes in these factors?
What will be an ideal response?
The demand for labor is influenced by changes in the price of the firm's output, the prices of other factors of production, and technology.
The demand for labor is based on the value of marginal product, which is equal to the marginal product times the price. When the price of the firm's output increases, the value of marginal product increases, making hiring more workers profitable. So when the price of the firm's output increases, so does its demand for labor.
The prices of other factors of production also influence the demand for labor. The different factors of production can be substitutes for each other. For instance, if the price of capital falls relative to the wage rate, a firm will substitute capital for labor, which will decrease the demand for labor. However, if the cheaper capital results in a large increase in production, it is possible that the demand for labor will increase.
Technology can either increase or decrease the demand for labor, depending on whether the technology allows firms to replace workers with capital (which decreases the demand for labor) or makes the labor more productive (which increases the demand for labor).
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