Question

(The Lost Episodes) Perfectly competitive factor and output markets.

In a labor market, can an individual firm determine the market wage? Answer this using at least 100 words.

According to this video, explain how many workers an individual firm should hire in order to maximize profit, according to the Rule for Hiring? Answer this using at least 100 words.

According to this video, how would you determine how much revenue is generated by hiring additional worker? Answer this using at least 100 words.

Answer 1

Ans. Since, the video is missing in the question, so I will try to answer the question at general level.

Q1. In a labor market, can an individual firm determine the market wage?

Ans. In a perfectly competitive factor and output markets, an individual firm cannot determine the market wage. In perfect competition, there are large number of buyers and sellers. The size of each firm/ seller is so small that it alone cannot affect the market wage rate in an industry. The market wage can be determined by the industry. The market wage is optimum where labor demand and labor suppply becomes equal. Only in imperfectly competitive markets, firm set the wages depending upon their behavior. While, when firm is in perfectly competitive environment, it has to accept the wages that are set by the industry itself.

Q2. explain how many workers an individual firm should hire in order to maximize profit, according to the Rule for Hiring?

Ans. The firm hires the workers until the situation where;

Marginal revenue product of labor = market wage rate

Marginal revenue product of labor: It is the addition to the total revenue when firm hires an additional labor. This curve is downward in shape, it means as the workforce increases in a firm, the marginal revenue product of labor goes on falling. So, the firm will hire workers upto the point where the marginal revenue product of labor is greater than or atleast equal to the market wage. This is the optimum situation for a firm to hire workers.

Q3. how would you determine how much revenue is generated by hiring additional worker ?

Ans. We can determine it by calculating Marginal Revenue product of labor, it is defined as extra revenue produced when an additional unit of labor is employed.

We have to calculate the marginal revenue at different labor units. Then multiply the marginal revenue with the price of product. This gives us the marginal revenue product of labor.