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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Explain why the market demand curve for labor is not simply the horizontal addition of the firms’ demand curves for labor.

To determine

Market demand curve and firm’s demand curve.

Explanation

The following figure depicts the derivation of industry demand curve from firm’s demand curves:

In the figure, the horizontal and vertical axes represent the quantity of labors and wage rate, respectively. There are two firms A and B. Panel (a) shows the demand curve of Firm A. Panel (b) shows demand curve of Firm B. Panel (c) is the demand curve for an industry. At the initial wage rate W1, both firms together purchased 250 (100+150) units of labors. Then, the wage rate increases as W2 and both firms together purchases 210(80+130) units of labors

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