In a purely competitive labor market (a), market labor supply S and market labor demand D determine the equilibrium wage rate Wc and the equilibrium number of workers Qc . Each individual competitive firm (b) takes this competitive wage Wc as given. Thus, the individual firm’s labor supply curve s = MRC is perfectly elastic at the going wage Wc . Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizes its profit by hiring workers up to where MRP = MRC. Area 0abc represents both the firm’s total revenue and its total cost. The green area is its total wage cost; the blue area is its nonlabor costs, including a normal profit—that is, the firm’s payments to the suppliers of land, capital, and entrepreneurship. This firm’s labor demand curve d in graph (b) slopes downward because: a. the law of diminishing marginal utility applies. b. the law of diminishing returns applies. c. the firm must lower its price to sell additional units of its product. d. the firm is a competitive employer, not a monopsonist. FIGURE 17.3 Labor supply and labor demand in (a) a purely competitive labor market and (b) a singlecompetitive firm. In a purely competitive labor market (a), market labor supply S and market labor demand Ddetermine the equilibrium wage rate W. and the equilibrium number of workers Q.. Each individual competitivefirm (b) takes this competitive wage W, as given. Thus, the individual firm's labor supply curve s = MRC is perfectlyelastic at the going wage W. Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizesits profit by hiring workers up to where MRP = MRC. Area Oabc represents both the firm's total revenue and itstotal cost. The green area is its total wage cost the blue area is its nonlabor costs, including a normal profit-thatis, the firm's payments to the suppliers of land, capital, and entrepreneurship.($10) W.($10) W.S= MRCD = MRP(Σ mrps)d = mrp(1,000)(5)Quantity of laborQuantity of labor(a)(b)Labor marketIndividual firmWage rate (dollars)Wage rate (dollars)

The market is a place where the buyers and sellers interact with each other and the exchange of…

Answered: FIGURE 17.3 Labor supply and labor…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.10P

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In a purely competitive labor market (a), market labor supply S and market labor demand D determine the equilibrium wage rate Wc and the equilibrium number of workers Qc . Each individual competitive firm (b) takes this competitive wage Wc as given. Thus, the individual firm’s labor supply curve s = MRC is perfectly elastic at the going wage Wc . Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizes its profit by hiring workers up to where MRP = MRC. Area 0abc represents both the firm’s total revenue and its total cost. The green area is its total wage cost; the blue area is its nonlabor costs, including a normal profit—that is, the firm’s payments to the suppliers of land, capital, and entrepreneurship. This firm’s labor demand curve d in graph (b) slopes downward because:
a. the law of diminishing marginal utility applies.
b. the law of diminishing returns applies.
c. the firm must lower its price to sell additional units of its product.
d. the firm is a competitive employer, not a monopsonist.

FIGURE 17.3 Labor supply and labor demand in (a) a purely competitive labor market and (b) a single
competitive firm. In a purely competitive labor market (a), market labor supply S and market labor demand D
determine the equilibrium wage rate W. and the equilibrium number of workers Q.. Each individual competitive
firm (b) takes this competitive wage W, as given. Thus, the individual firm's labor supply curve s = MRC is perfectly
elastic at the going wage W. Its labor demand curve, d, is its MRP curve (here labeled mrp). The firm maximizes
its profit by hiring workers up to where MRP = MRC. Area Oabc represents both the firm's total revenue and its
total cost. The green area is its total wage cost the blue area is its nonlabor costs, including a normal profit-that
is, the firm's payments to the suppliers of land, capital, and entrepreneurship.
($10) W.
($10) W.
S= MRC
D = MRP
(Σ mrps)
d = mrp
(1,000)
(5)
Quantity of labor
Quantity of labor
(a)
(b)
Labor market
Individual firm
Wage rate (dollars)
Wage rate (dollars)

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