Question

What is the labor demand curve? Where is it derived from? Why is it downward sloping?

.What is the labor supply curve? Why is it upward sloping?

What happens to the labor demand function as the firm increases its marginal product of labor?

Answer 1

A firm ​​​​​​represents the labour demand curve by plotting the marginal revenue product of labor in the firm. Due to the low diminishing returns, the labor demand curve are plotted as downward sloping. When more labor hired to a firm, the marginal product of labor decreases and it further causes fall in the marginal revenue product of labor.

The labor supply curve will shows the relationship between variation in real wage rates affect the hours that worked by the employees. As the wage raises, the supply will also raises in an typical labor-supply curve. The slope of labor supply curve is from left to right and it is graphically viewed as a backward bending supply curve. It indicates that, after a certain point, higher wages can drives to decrease in labor supply.

The firm will hire more labors when the wage falls. The hiring of workers in the firm is more profitable while there is decrease in the wage. The marginal product of a workers will decrease when the firm will hires more workers and value of marginal product decreases. The firm targets for profit maximising will hire the labour upto a level that marginal revenue rate equal to wage rate.