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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

What is the marginal cost of labor for a firm that operates in a competitive labor market? How does this compare with the MCL for a monopsony?

To determine

The marginal cost of labor of a firm that in a competitive labor market is to be determined and it is to be compared with the MCL for a monopsony.

Explanation

Let us plot the market wage in the Y-axis and the marginal labornumber along withthe X-axis. Hence, the Y-axis will have market wage in dollars while the X-axis will have marginal labor in figures like 3, 5, etc.

Let us plot the wages as a constant amount, horizontally,along with the X-axis equivalent at a height to the market wagesamount from the X-axis.

The X-axis point above which the MRPL (marginal revenue product of labor), while sloping downwards, (theory of diminishing returns) intersects the constant market wages (constant because labor market is competitive and wages are determined by the market), is the marginal cost of labor or MLC.

If the wages are increasing with an increase in the marginal number of employees, MRPL will intersect the wages at a higher point as compared to when the wages are fixed...

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