Answer to Question #266894 in Microeconomics for ari

Question

Using an appropriate graph, demonstrate the changes in the firm’s demand for labour in

terms of:

(a) changes in market wage rate. (20 marks)

(b) changes in the price of output (that produced by the labour).

Answer 1

Solution:

a.). Changes in the market wage rate will result in a change in the quantity demanded of labor. If there is an increase in the wage rate, the demand for labor will decrease since employers will want to hire fewer employees and vice versa. Therefore, the demand for the labor curve is always downward sloping.

This is depicted by the below graph:

 

b.). The changes in the price of output result in changes in the MRPL thus will shift the demand curve for labor. If the price that a firm can charge for its output increases, MRPL will increase and the firm will demand more labor. The demand curve will shift outwards.

This is depicted by the below graph: