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Perfectly Competitive Labor Markets

In a perfectly competitive labor market: 1) The equilibrium wage is determined by the intersection of the aggregate labor supply and demand curves. 2) Individual firms will hire labor up to the point where the marginal revenue product of labor equals the prevailing market wage. 3) Workers will supply their labor up to the point where the wage rate equals their marginal disutility of working additional hours.

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688 views16 pages

Perfectly Competitive Labor Markets

In a perfectly competitive labor market: 1) The equilibrium wage is determined by the intersection of the aggregate labor supply and demand curves. 2) Individual firms will hire labor up to the point where the marginal revenue product of labor equals the prevailing market wage. 3) Workers will supply their labor up to the point where the wage rate equals their marginal disutility of working additional hours.

Uploaded by

api-3825580
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Perfectly

Competitive
Labour Markets
Perfectly competitive labour markets

Market equilibrium in
a perfect labour
market
A labour market: whole market

Sall workers
in the market
Hourly wage

Wm

Dall firms
in the market

O
Labour hours
Perfectly competitive labour markets

Employers and
employees in a perfect
labour market
Hourly wage A labour market: individual employer

Slabour
Wm

Dindividual employer

O Q1
Labour hours
A labour market: individual worker

Sindividual worker
Hourly wage

Dlabour
Wm

O Q2
Labour hours
Perfectly competitive labour markets

The supply of labour


The marginal disutility of hours worked

MDU
Disutility

O
Hours worked
The supply of hours worked

S
Hourly wage

O
Hours worked
Perfectly competitive labour markets

The demand for


labour:
Marginal productivity
theory
Marginal physical product of labour curve
x

Diminishing returns
set in here
Output

MPPL

O
Q of labour
The profit-maximising level of employment
£

MCL= W
Wm

MRPL = MPPL × Pgood

MRPL

O Qe
Q of labour
Deriving the firm’s demand curve for labour
£

a
W1 MCL1
b
W2 MCL2
c
W3 MCL3

Profits maximised
where MRPL = MCL
MRPL

O Q1 Q2 Q3
Q of labour
Deriving the firm’s demand curve for labour
£

a
W1 MCL1
b
W2 MCL2
c
W3 MCL3

The MRPL curve traces


out the demand curve
D

O Q1 Q2 Q3
Q of labour
Perfectly competitive labour markets

Wages and profits


Wages and profits
£

Surplus for firm


MCL = W
W

Wages

MRPL

O Qe
Q of labour

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