Demand For Labour

Economic theory suggests demand for labour depends on the Marginal Revenue product of a worker.

Definition: Marginal Revenue Product of Labour ( MRP)

This is the extra revenue a firm gains from employing an extra worker. It depends on a workers productivity (PPP) and the Margainal Revenue (MR) of last good sold.

Definition Marginal Physical Product (MPP)

This is the extra output that an extra worker produces .

Marginal Revenue (MR)

This is the revenue that a firm gains from selling the last unit of output. It is closely related to the price of the good sold.

 

Therefore the Demand for Labour depends upon

  1. The productivity of labour MPP
  2. The demand for the good
  3. The wage rate, strictly this is the MC

 

Diagram of: Wage Determination in Competitive Labour Markets

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Essays and Revision Notes on Labour Markets

Flexible Labour Markets

Minimum Wages