Covering Chapters 16–17: Max Points 50 Due July 11

Covering Chapter 16 17 Maximum Possible Points 50due Day 71159p

Covering Chapter 16 &17 (Maximum possible points: 50) Due: Day 7(11:59pm) Watch the following video, and answer the following questions. In a labor market, can an individual firm determine the market wage? Answer this using at least 100 words. According to this video, explain how many workers an individual firm should hire in order to maximize profit, according to the Rule for Hiring? Answer this using at least 100 words. According to this video, how would you determine how much revenue is generated by hiring additional worker? Answer this using at least 100 words.

In a competitive labor market, an individual firm cannot influence or determine the market wage due to the presence of many buyers and sellers, making wages effectively set by supply and demand forces. The firm is considered a price taker, accepting the prevailing market wage as given. The wage rate is determined by broader economic conditions, industry standards, and labor market dynamics, not by a single firm’s actions. While a firm can offer wages to attract workers, it cannot set or influence the overall market wage rate independently. Instead, it must adapt to the prevailing wage to remain competitive and attract the needed labor.

According to the Rule for Hiring, a firm should hire workers up to the point where the marginal revenue product (MRP) of the last worker hired equals the wage rate. The marginal revenue product is calculated by multiplying the marginal product of labor (the additional output produced by one more worker) by the price at which the output is sold. To maximize profit, the firm continues hiring additional workers as long as the additional revenue generated by the last worker exceeds or equals the wage paid. Once the cost of hiring an additional worker surpasses the revenue generated, the firm should cease hiring, as further employment would reduce overall profit. This rule ensures optimal employment levels where marginal benefits equal marginal costs.

To determine how much revenue is generated by hiring an additional worker, a firm must analyze the marginal revenue product of that worker. This involves assessing the additional output produced by the worker (marginal product) and multiplying it by the price per unit of output. In a perfectly competitive market, the price remains constant, so the revenue generated by the additional worker is simply the marginal product multiplied by the market price. This calculation reveals the incremental revenue attributable to hiring that worker. When the additional revenue (MRP) exceeds the wage, hiring is justified. Conversely, if the MRP falls below the wage, hiring additional workers is not financially advantageous.

Paper For Above instruction

The dynamics of labor markets and the strategic decisions firms make regarding employment are central to understanding economic efficiency and profitability. A fundamental concept is that individual firms in perfectly competitive markets lack the power to set wages; instead, wages are determined by supply and demand across the entire labor market. Since many firms compete for labor and many workers seek employment, the equilibrium wage is formed where labor supply meets labor demand at the industry or market level (Mankiw, 2020). This competitive setting ensures that firms accept existing wages, which reflect broader economic factors rather than individual wage-setting power. Consequently, a single firm cannot manipulate or decide the market wage; it must operate within the prevailing wage rate to remain competitive and attract labor.

The Rule for Hiring is a vital principle in microeconomics that guides firms toward profit maximization. This rule states that firms should hire additional workers up to the point where the marginal revenue product (MRP) of the last worker hired equals the wage rate (Perloff, 2019). The MRP is calculated by multiplying the marginal product of labor (how much additional output one more worker produces) by the market price of the product. For example, if hiring one more worker adds 10 units of output, and each unit sells for $5, the additional revenue generated is $50, which equals the MRP of that worker. The firm continues to hire as long as this value exceeds or equals the wage; once the MRP falls below the wage, additional hiring would decrease overall profit. This rule balances the cost of labor against the revenue it generates, ensuring optimal employment levels.

Determining the revenue generated by hiring an additional worker involves calculating the marginal revenue product. In a perfectly competitive market, the firm assesses this by multiplying the marginal product of labor by the product’s market price. This calculation provides the incremental revenue from employing one more worker, which helps the firm decide whether that employment is profitable. If the marginal revenue product exceeds the wage, hiring the worker increases profit; if it is lower, the firm should refrain from hiring further workers. This approach aligns with the idea of marginal analysis, where decisions are made based on additional costs and benefits, leading to efficient resource allocation (Pindyck & Rubinfeld, 2018). Firms rely on this analysis to optimize labor input and maximize overall profits, especially in competitive markets where prices are stable and predictable.

References

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• Perloff, J. M. (2019). Microeconomics: Principles and Policy (6th ed.). Pearson.
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