Answer to Question #83597 in Economics of Enterprise for Shaendra

Question

Describe wage determination in a labor market in which workers are unorganized and many firms actively compete for the services of labor. Show this situation graphically, using W1 to indicate the equilibrium wage rate and Q1 to show the number of workers hired by the firms as a group. Show the labor supply curve of the individual firm and compare it with that of the total market. Why are there differences? In the diagram representing the firm, identify total revenue, total wage cost, and revenue available for the payment of non labour resources.

Answer 1

In a labor market unorganized workers create labor supply and many firms which actively compete for the services of labor create demand for labor. The point where labor supply and demand curves intersect is the market equilibrium at which W1 is the equilibrium wage rate and Q1 is the number of workers hired by the firms as a group. The number of labor supply curves of the individual firms creates the total market labor supply curve.