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Marginal revenue product
(MRP)The marginal physical product (MPP) times marginal revenue (MR). The MRP gives the additional revenue obtained from a one-unit change in labor input.
=MPP x MR
This is the supply curve for the labor market
Marginal factor cost
(MFC)The cost of using an additional unit of an input.For example, if a firm can hire all the workers it wants at the going wage rate, the marginal factor cost of labor is that wage rate.
Marginal physical product
(MPP) of labor The change in output resulting from the addition of one more worker. The MPP of the worker equals the change in total output accounted for by hiring the worker, holding all other factors of production constant.
GENERAL RULE FOR HIRING
MFC = MRP
The firm hires workers up to the point at which the additional cost associated with hiring the last worker is equal to the additional revenue generated by hiring that worker.
Input factor demand derived from demand for the final product being produced.
Shift of MRP
The MRP curve shifts whenever there is a change in the price of the final product that the workers are producing.
Whenever there is a change in the price of MFC
things that cause Shift in MRP
A change in the demand for the final product that labor (or any other variable input) is producing will shift the market demand curve for labor in the same direction.
A change in the price of a complementary input will cause the demand for labor to change in the opposite direction.
A change in the price of a substitute input will cause the demand for labor(or any other input) to change in the same direction.
A change in labor productivity will shift the market labor demand curve in the same direction.
A firm’s employment of labor outside the country in which the firm is located.
Labor outsourcing by U.S. firms tends to reduce U.S. wages and employment. Whenever foreign firms engage in labor outsourcing in the United States, however, U.S. wages and employment tend to increase.