The firm faces a market price of $10 for each unit of its output. In a perfectly competitive market, the firm's marginal revenue product of labor is the value of the marginal product of labor.įor example, consider a perfectly competitive firm that uses labor as an input. The marginal revenue product of labor is related to the marginal product of labor. The marginal revenue product of labor (or any input) is the additional revenue the firm earns by employing one more unit of labor. When the firm knows the level of demand for its output, it determines how much labor to demand by looking at the marginal revenue product of labor. If demand for the firm's output falls, the firm will demand less labor and will reduce its work force. If demand for the firm's output increases, the firm will demand more labor and will hire more workers. The firm's demand for labor is a derived demand it is derived from the demand for the firm's output. Firms demand labor from workers in exchange for wages. Workers supply labor to firms in exchange for wages. The participants in the labor market are workers and firms. The demand and supply of labor are determined in the labor market. The two most common are labor and capital. Firms may choose to demand many different kinds of inputs. In addition to making output and pricing decisions, firms must also determine how much of each input to demand. Labor Demand and Supply in a Perfectly Competitive Market Labor Demand and Supply in a Perfectly Competitive Market. Equilibrium in a Perfectly Competitive Market.Monopolistic Competition in the Long-run.Demand in a Perfectly Competitive Market.Classical and Keynesian Theories: Output, Employment.
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