The market supply curve for labor is upward sloping and the market demand curve for labor...

The market supply curve for labor is upward sloping and the market demand curve for labor is downward sloping yet for a single firm the demand curve is flat. Explain.

I really dont need the answer, but if someone could explain what this is asking. I get that the market supply curve slopes upward and the demand curve slopes downward, but what exactly is the question getting at when it says a single firm is flat. Is it referring to a specific job market like fast food workers? Even that's not necessarily flat...

Solutions

Expert Solution

The market labor supply curve is upward sloping meaning the higher the wages higher will be the supply. Thus when the market is giving higher wages, more number of people will be willing to work.

Market demand curve for labor is downward sloping, because higher the wages, lower will be the demand for labour as firms have to pay a higher salary.

Now in the case of demand curve being flat for a single firm, it essentially means even if the firm has a demand for 400 or 40 output/quantity the price which the firm charges is the same because the firm is in a perfectly competitive market structure where any number of firms can enter and exit the market.

As a single firm is a price taker, they see a flat demand curve, wherein no matter how much they produce the price at which the product sells is the same and thus will remain constant.

Same could be correlated with the labour demand curve if one were to relate the concept to the labor market. In a perfectly competitive market the single firm is a wage taker which means it takes the wage rate as given, thus for them they see a flat wage rate no matter how much they sell in the market. Even if a single firm hires more people it will pay the same wage, and even if it hires a single person, it will pay the same wage because the wage rate is given.

But the overall market labour demand curve will not be flat as it takes all the firms cumulatively wages into perspective, wherein the wage rates would vary for all different firms.

Rahul Sunny answered 1 year ago

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