Question

13. Explain how Marginal Revenue of labor represents the firm’s demand curve. Explain factors shifting demand for labor.

Answer 1

Answer:

The demand and supply of workers in the labor market is determined. There are workers and firms that are participating in the labor market. Workers supply labor in exchange for wages to firms. And Firms demand labor from workers in exchange for wages.

The firm’s demand for workers is a derived demand; It is made up of the firm’s output demands. If the demand for the company’s product continues to grow, the firm will demand more workers and hire more workers. If the demand for the firm's product decreases, the firm will demand lower labor and reduce its workforce.

The marginal revenue product of labor (or any input) is the additional revenue the firm receives by employing another unit of workers. The marginal revenue product of labor is related to the marginal product of the labor. When a firm knows the level of demand for its output, it decides how many workers to demand in the labor within the boundaries of marginal revenue product of labor.

The firm's labor demand curve The firm's profit-maximum labor-demand decision is shown graphically in the figure.(Please refer the figure)

This figure represents a rate of earnings of $ 45, including the margin wage rate of the labor statistics on the table. It represents the firm's labor demand curve when it comes to labor's marginal income. The demand curve goes down because of the law of diminishing returns; As additional employees are employed, the marginal output of wages begins to decline, resulting in lower. The intersection of the curve of marginal revenue product curve with market wages determines the number of employees employed by the firm, during this case three employees.

Explain factors shifting demand for labor.

Changes in the labor demand curve occur for a number of reasons. One of the main reasons is that the demand for workers is based on the demand for good or services being produced.

For example, the more new cake lover consumers demand, the greater the number of bakers will need to hire. Hence the demand for workers is called “derived demand”. As the demand for goods and services increases, so will the demand for labor or turn to the right to meet the production needs of employers. As the demand for product and services decreases, the demand for labor decreases or shifts to the left. Here are some of the main causes explained:

Demand for output:

When the demand for output increases the demand for a well-produced product, both the output price and the profit increase. As a result, manufacturers demand more workers for growth.

Technology:

More and higher technology can increase the demand for skilled staff who has knowledge of how to use technology to extend work productivity. Demand will fall for workers who do not adapt to changes in technology.

Education and Training:

Educated and well-educated employees increase the demand for that labor from the employers. Increased productivity among the workers moves the demand for workers to the right. If the number of employees is not trained or well-educated, employers will not be able to work from that labor pool as they will have to spend significant time and money training for the work. Such a demand will be shifted to the left.

Number of Companies:

An increase in the number of companies manufacturing a given product increases the demand for labor which leads to a shift to the right. A decrease in the number of companies manufacturing a given product will reduce the demand for labor which will lead to a shift to the left.

Government Regulations:

For eg. In the healthcare industry, nurses may be required to perform certain medical procedures as per government regulations. This will increase the demand for nurses Less trained health care staff are going to be barred from closing the procedure and therefore the demand for these staff can shift to the left.