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Chapter 28: Q. 28.3. - For Critical Thinking (page 624)

Describe how equilibrium wage rates are determined for perfectly competitive firms.

Short Answer

Expert verified

In a competitive labor market, the equilibrium wage and employment level are determined when the market demand for labor equals the market supply of labour. The equilibrium market wage rate is found where labour supply and demand intersect.

Step by step solution

01

Introduction.

A perfectly competitive firm must accept the equilibrium price at which it sells goods because it is a price taker. If a company charges even a small amount more than the market price, it will be unable to make any sales.

02

Equilibrium wage rates.

The equilibrium market wage rate is found at the point where supply and demand for labor intersect. Employees are hired until the additional cost of hiring an employee equals the additional sales revenue from selling their output.

03

For perfectly competitive firms, equilibrium wage rates are calculated.

The equilibrium wage and employment level in a competitive labor market are determined when the market demand for labor equals the market supply of labor. The market wage rate, like all equilibrium prices, is determined by the interaction of supply and demand in the labor market.

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Most popular questions from this chapter

The following table depicts the output of a firm that manufactures computer printers. The printers sell for $100each.

Labor Input

(workers per week)


 Total Output
( printers per week)
10 200
11 218
12 234
13 248
14 260
15 270
16 278

Calculate the marginal product and marginal revenue product at each input level above 10 units.

The following table depicts the product market and labor market a digital device manufacturer faces.

a. Calculate the firm's marginal product, total revenue, and marginal revenue product at each input level above 10units.

b. The firm competes in a perfectly competitive labor market, and the market wage it faces is $100per worker per day. How many workers will the profit-maximizing employer hire?

If clothing manufacturers were to substitute robotic sewing machines for human labor, would you anticipate that the prices of these two resources would remain unchanged? Explain your reasoning.

Understand why a firm's marginal revenue product curve is its labor demand curve.

Recently, there has been an increase in the market demand for products of firms in manufacturing industries. The production of many of these products requires the skills of welders. Because welding is a dirty and dangerous job compared with other occupations, in recent years fewer people have sought employment as welders. Draw a diagram of the market for the labor of welders. Use this diagram to explain the likely implications of these recent trends for the market clearing wage earned by welders and the equilibrium quantity of welding services hired.
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