Demand For Labor (Mod 3 case)
We will examine the labor market in this module. The demand and supply curves determine the wage and quantity of labor in each market. You will also review the concept of marginal productivity.
Required Reading
Bouman, John. () Principles of Microeconomics. "Unit 4: Business Production Behavior" (Sections 1-4 only) Retrieved from:http://www(dot)inflateyourmind(dot)com/pdfs/microeconomics.pdf
Rittenberg Libby and T. Tregarthen. (2009). Chapter 12: Wages and Employment in Perfect Competition. Sections 1-4. Retrieved from:http://www(dot)web-books(dot)com/eLibrary/NC/B0/B63/TOC.html
SLP Readings
Boaz, David. Reporting the Minimum Wage. Cato Institute. Retrieved from: http://www(dot)cato-at-liberty(dot)org/reporting-the-minimum-wage/
Filion, Kai (2009) Minimum Wage Issue Guide. Economic Policy Institute. Retrieved from:http://www(dot)epi(dot)org/publication/issue_guide_on_minimum_wage/
Course Handout
Module 3 - Case
DEMAND: UTILITY AND MARGINALITY
Case Assignment
The Case Assignment focuses on several concepts from the labor market including marginal production, total production, and wage determination. These terms are important in determining how many workers will be hired by a firm.
Write a 3-page paper that’s addresses the following questions:
- Discuss two factors that would increase demand for labor. (Hint: Recall that the demand for factors of production or resources is called a derived demand)
- If the market price of the good or service that a firm produces increases, what happen to the demand of labor? Explain.
- Numerical Problems. Answer the two questions below.
- Take a look at the numerical example on page 76 of the online text Principles of Microeconomics. What would be the marginal production at a level of 20 workers? Calculate. What can be said about the total production of cars as more workers are added (Hint: use the economic concept from the chapter in your answer)?
- Using your answer from (a) and using the information below:
1. Each worker costs the firm $4,000 per month.
2. Each acre of land costs the firm $1,000 per month.
3. Each machine costs the firm $600 per month.
-Each worker costs the firm $4,000 per month.
-Price of the output (car) is $20,000
Should the firm move from the 15th to the 20th worker? In other words, should the firm hire 20 workers. Why? (Hint: You need to calculate the cost of total workers and the marginal revenue product [MRP = price of output * marginal product of labor].)
Assignment Expectations
Use concepts from the modular background readings as well as any good-quality resources you can find. Be sure to cite all sources within the text and provide a reference list at the end of the paper.
Length: 3 pages double-spaced and typed.
The following items will be assessed in particular:
- Your ability to understand marginal productivity and how firms make decisions.
- Some in-text references to the modular background material (APA formatting required).
- The essay should address each element of the assignment. Remember to support your answers with solid references including the case readings.
Upload your paper when it is done.
Please answer the following after the essay is written
a luxury good is one which demand shows an increase..yes? But what drives demand? Moreover, tell me why you think Porsche automobiles continued to show improved sales throughout the recession? Would this car not be classified as a "luxury" good?......
Demand For Labor
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Demand for labor
1 Discuss two for factors that would increase demand for labor.
a). Increased demand for the product.
Increased demand for the final product leads to increased price of the product, in the short run, which in turn increases the demand for the factors involved in its production (Web books, n.d.). Eventually, there is an increase in demand for labor that is employed in the production of the product. Demand for labor is therefore referred to as derived demand. Therefore, the demand for labor is derived from the increased demand of the final product.
b). Change in technology.
Advanced technology significantly increases firms’ output by boosting the marginal products of the workers with the relevant skills (Web books, n.d.). The demand for workers who have these skills increases with adoption of sophisticated technologies. On the other hand, technology can be a substitute for less skilled workers thus lowering their demand. Changes in technology cause changes to the marginal product of labor (MPL) function, increasing at each level of labor shifts the labor demand curve rightwards (Arnold, 2008).
2 If the market price of the good or service that a firm produces increases, what happen to the demand of labor? Explain.
Increased market price of a firm’s product or service increases the demand for labor in the short run. The demand for labor shifts rightwards when there is a rise of the output price (Mankiw, 2012). The marginal revenue product of labor increases; this leads to increase in the demand for workers. For example, increased price for airplanes would raise the marginal revenue product of the airplane-assembly labor force thus raise the demand of these workers. Conversely, a decrease of the output price lowers the demand for labor at each wage (Tennant, Hakes & Gans, (2009).
3 Numerical Problems. Answer the two questions below.
1 Take a look at the numerical example on page 76 of the online text Principles of Microeconomics. What would be the marginal production at a level of 20 workers? Calculate.
The total production at 20 workers is 100 cars (Bouman, n.d.). In the previous row of 15 workers, the total production was 70. Therefore, marginal production at 20 workers is calculated by dividing 30 (100 minus 70) by 5 (the change in workers) which equals to 6.
What can be said about the total production of cars as more workers are added?
There is a decrease in marginal production of cars after a certain number of workers is reached. The additional productivity of workers who were hired first was higher than the additional productivity of workers who were hired later. This is because the workers who were hired first were capable of specializing optimally with the available fixed inputs. The Law of Diminishing Marginal Production takes effect when more workers are added in the short run without addition of more inputs (Bouman, n.d.). The addition of more workers past the optimal number without addition of more machines lowers the marginal production as there is no room for accommodating the extra employees.
2 Using your ...