What is the relationship between the marginal revenue product (MRP) and the demand curve for labor?
Answer:
The firm maxinises profits at that level of input of labour at which the wage rate is equal to the marginal revenue product of that level of labour input. So, each point on the marginal revenue product really indicates that the firm is willing to buy that quantity of labour at a wage equal to the MRP at that quantity of labor. So, treat MRP as equal to wage, you get the MRP curve as nothing but the quantity of labor demanded at different wage rates. So , the MRP curve is nothing but the damend for labor curve.
The smaller your marginal revenue product i guess the lower your demand for labour, however the demand for labour cant stop after the first worker (he has the highest marginal revenue product) because then he would have to pay a fortune for an output that is quite low. So as a result because the wages paid to workers equal to the marginal revenue product of the last worker hired there is a point where marginal revenue product is low enough to justify paying a specific wage to all employees.
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