Define perfectly competitive labor market.
Many small firms hiring labor; firms are wage takers; identical workers; easy hiring; profit maximization where MRP=MRC.
What does 'wage taker' mean in a perfectly competitive labor market?
Firms must accept the market wage and cannot influence it.
Define Marginal Revenue Product (MRP).
The additional revenue generated by hiring one more worker.
Define Marginal Resource Cost (MRC).
The additional cost of hiring one more worker.
What is the Least-Cost Rule?
Firms minimize costs when MPx/Px = MPy/Py, where MP is marginal product and P is price.
Define the Profit-Maximizing Rule for resources.
Firms maximize profit when MRPx = MRCx and MRPy = MRCy for all resources.
What is the significance of identical workers in a perfectly competitive labor market?
All workers are considered equally skilled and perfect substitutes for one another.
Define diminishing marginal returns in the context of labor.
Each additional worker adds less revenue due to limited resources, causing the demand for labor to be downward-sloping.
What does a perfectly elastic labor supply curve mean for a firm?
Firms can hire as many workers as they need at the market wage without affecting the wage rate.
What is the relationship between the market wage and the firm's MRC in perfect competition?
In a perfectly competitive labor market, the MRC is equal to the market wage because firms are wage takers.
How does an increase in product demand affect a firm's demand for labor?
An increase in product demand increases the firm's MRP, shifting the labor demand curve to the right, increasing the wage and quantity of labor hired.
If MRP > MRC, what should a firm do?
The firm should hire more of that resource to increase profits.
If MP_labor/P_labor < MP_capital/P_capital, how should a firm adjust its resource mix?
The firm should hire less labor and more capital to minimize costs.
How does increased automation (robots) affect the demand for labor?
Increased automation may decrease the demand for labor if robots are substitutes for workers, shifting the labor demand curve to the left.
How does an increase in the supply of labor affect the market wage?
An increase in the supply of labor decreases the market wage as more workers are available at each wage level.
A firm is deciding whether to hire another worker. How should they decide?
The firm should compare the worker's MRP to the MRC (wage). If MRP ≥ MRC, hire the worker.
Explain how the availability of alternative job opportunities affects the labor supply.
If alternative job opportunities with higher wages become available, the labor supply in the original market will decrease as workers move to the better-paying jobs.
How does improved worker training affect the MRP?
Improved worker training increases worker productivity, leading to a higher MRP and a higher demand for labor.
How does an increase in the price of capital affect the demand for labor if labor and capital are complements?
If labor and capital are complements, an increase in the price of capital may decrease the demand for labor as firms use less capital, thus needing less labor.
How does a government subsidy on labor affect the firm's hiring decisions?
A government subsidy on labor reduces the firm's MRC, encouraging them to hire more labor.
Differentiate between cost minimization and profit maximization.
Cost minimization is about efficiency (MPx/Px = MPy/Py), while profit maximization is about making the most money (MRPx = MRCx).
Compare the labor supply curve for the market versus a single firm in perfect competition.
The market labor supply curve is upward sloping, while the firm's labor supply curve is perfectly elastic (horizontal).
What is the difference between the demand for labor and the supply of labor?
Demand for labor represents firms hiring workers, while supply of labor represents individuals willing to work.
Compare the impact of an increase in labor productivity versus an increase in the price of the firm's output on the demand for labor.
Both increase the demand for labor, but productivity increases MRP directly, while output price increases MRP indirectly through increased revenue.
What is the difference between marginal product (MP) and marginal revenue product (MRP)?
Marginal product (MP) is the additional output from one more unit of input, while marginal revenue product (MRP) is the additional revenue from one more unit of input.
Compare the effects of a minimum wage in a perfectly competitive labor market versus a monopsonistic labor market.
In a perfectly competitive market, a minimum wage above equilibrium creates unemployment. In a monopsonistic market, it can increase both wages and employment up to a certain point.
Differentiate between the short-run and long-run effects of technological change on the demand for labor.
In the short run, technological change might displace workers. In the long run, it can increase productivity and overall demand for labor in new industries.
Compare the impact of a government subsidy on labor versus a tax on labor on the firm's hiring decisions.
A subsidy reduces the cost of labor, encouraging hiring, while a tax increases the cost of labor, discouraging hiring.
What is the difference between a change in the wage rate and a change in non-wage benefits on the labor supply?
A change in the wage rate affects the quantity of labor supplied (movement along the curve), while a change in non-wage benefits (e.g., healthcare) can shift the entire labor supply curve.
Compare the elasticity of labor demand for a firm in a perfectly competitive product market versus a firm in an imperfectly competitive product market.
Labor demand is more elastic for a firm in a perfectly competitive product market because they are price takers, and changes in labor costs have a greater impact on output prices and quantity demanded.
