ECON 1000 Lecture Notes - Lecture 17: Opportunity Cost, Human Capital, Marginal Utility
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27 Feb 2016
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Is a price-taker in the goods market, i. e. no matter how much it produces, no impact on price. Is a price-taker in the factor (e. g. labour) market, i. e. Is a price-taker in the factor (e. g. labour) market, i. e. no matter how much labour it hires, no impact on wage. From production function we know that additional unit of labour adds additional production or q/ l or marginal product of labour ( mpl) To maximize profits, the firms hires labour until the wage (mc) equals the vmpl (mb) or until: w = p x mpl = vmpl. The vpml is the firm"s demand curve for labour, i. e. for any given wage level, it shows how much labour will be hired (demanded) From production function, we know that mpl falls with increases in labour used ( holding other inputs constant: with a fixed p and a diminishing mpl, vmpl falls with increased use of labour.
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