Factor Markets

Marginal Product of Labor (MPL)

The additional output produced by employing one more unit of labor.

Marginal Revenue Product of Labor (MRP_L)

The additional revenue a firm earns by employing one more unit of labor, calculated as: MRP_L = MPL x MR.

Profit Maximization Rule

A firm maximizes profit by employing labor up to the point where the MRP_L equals the wage rate

Labor Demand Curve

The MRP_L curve represents the firm's demand for labor

Labor Market

The market where individuals supply their labor to firms in exchange for wages

Equilibrium Wage

The wage rate at which the quantity of labor supplied equals the quantity of labor demanded, with no surplus or shortage

Supply Curve for Labor

An upward sloping curve indicating that as wages increase, more individuals are willing to work

Demand Curve for Labor

A downward sloping curve meaning that as wages increase, firms demand less labor

Factors Shifting Labor Supply Curve

Population size, societal norms, and alternative employment opportunities

Factors Shifting Labor Demand Curve

Demand for the goods and services produced by labor, productivity, and technological advancements