Can someone explain why the frist one is correct? If the price for a product pro
ID: 1208454 • Letter: C
Question
Can someone explain why the frist one is correct?
If the price for a product produced in a competitive market increases, which of the following is most likely to occur in the labor market for workers who produce that product?
The demand for labor and the number of workers hired both increase.
The supply of labor and the number of workers hired both increase.
The demand for labor and the number of workers hired both decrease.
The supply of labor and the number of workers hired both decrease.
There is a movement along the demand for labor curve, and firms hire more workers.
Explanation / Answer
The perfectly competitive firm's profitmaximizing labordemand decision is to hire workers up to the point where the marginal revenue product of the last worker hired is just equal to the market wage rate,and The marginal revenue product of labor (or any input) is the additional revenue the firm earns by employing one more unit of labor.
So, the relation is
marginal revenue product of labor or MPL = Price*no. of Output
MPL = WAGE RATE OR W
Price*no. of Output = W
So, as price of product increases , MPL increases , and as MPL increases , W increases and as W increases , Workers will supply more labour , so supply increases.
If you don't understand anything, then comment, I will revert back on the same.
And If you liked the answer then please do review the same. Thanks :)