Labor Demand Calculations

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Two factors that would increase demand for labor include the output price and the technological change. As the output price increases, the curve of labor demand augments thereby requiring more labor at all wages. As technology evolves, the MPL function is altered which causes an increase in L levels. If the market price of the good or service that a firm produces increases, a number of factors could explain the cause. First, this could come as a result of a growth in demand coupled with a drop in supply; such a shift would cause a drop in the demand for labor. Secondly, such a price rise could occur as a result of increased market power; in this case, the demand of labor would likely sustain or even grow.

After reviewing the numerical example on page seventy-six of the online text, the marginal production at a level of twenty workers would be the result of dividing the change in total product by the change in variable input. As more workers are added, the total production of cars experiences elasticity and increases in like manner, even though each worker costs the firm \$4,000 monthly. By determining the marginal revenue product and the cost of total workers, one can determine whether the firm should add five additional workers.

The total operational cost per month rests at \$1,000 per month plus the cost of each machine, \$600. At a total of fifteen employees, current cost rests at \$60,000 per month for a total of a base price of a minimum of \$61,000. To calculate the price of output, we must first determine the output rate. To determine the marginal product of labor, we must divide the change in output by the unit change in labor. Once this is complete, we arrive at marginal revenue product. This allows us to verify that the firm should move from the fifteenth to twentieth worker because the profit obtained from the output allows the firm to surpass zero economic profit and reinvest funds into its infrastructure thereby supporting systemic growth.

References

Bouman, J. (1994). Essential Principles of Microeconomics. Upper Saddle River, NJ: Pearson Custom Publications.

Rittenberg, L., & Tregarthen, T. (2008). Principles of microeconomics. Nyak, NY: Flatworld Knowledge.