Explain how the real wage and the extra output produced by each worker determine the quantity of labor demanded by a firm
What will be an ideal response?
The firm compares the cost of hiring an extra worker (the real wage) to the benefit (the extra output produced by an extra worker). Because the firm wants to make a profit, it hires the worker as long as the extra output is greater than the real wage. Thus the firm will demand (hire) the quantity of workers such that the extra output produced by the worker is greater than or equal to the real wage rate. Because labor has diminishing returns, there is some point at which the last worker hired produces just enough output to justify the wage rate and so additional workers will not be hired.
You might also like to view...
Under perfectly competitive conditions, marginal revenue is
a. greater than average revenue. b. equal to average revenue. c. less than average revenue. d. equal to the average variable cost.
The key to a country's economic growth is combining _______ with _______.
A. human capital; physical capital B. legal institutions; cultural institutions C. ideas; good institutions D. human and physical capital; ideas and good institutions
If marginal cost is below average cost, marginal cost must be rising.
Answer the following statement true (T) or false (F)
Which of the following equations is correct?
A) AVC - ATC = AFC B) AVC + ATC = AFC C) AFC + AVC = ATC D) ATC + AVC = AFC