Quiz 20: Labor and Entrepreneurship: the Human Inputs
If the labor supply of students are more and college is the only employer, then wages paid to the students are likely to relatively less. It can be explained with the help of following diagram. In the above diagram, one has taken number of workers on x-axis and wages on y-axis. DD is the demand curve and SS is the supply curve. W is the wages of the labors. Students have less knowledge and fewer experience thus they get OW wages. If students complete their education, then they would earn OW 1 wages i.e. higher wages in the market. One can get new demand and supply curve i.e. D 1 D 1 and supply curve S 1 S 1. In the monopsony market there is only buyer and many sellers. In this given case, students are the seller and college is the only buyer in the market. Therefore, it can consider as the monopsony market. Union is formed for the welfare of the labor. It demands the higher wages to the management of the firm on the behalf of the labors. If students form union, then they get higher wages even if they have low experience and less education.
(a) The marginal physical product is measured by considering the changes in total physical product. The following is a table which shows the marginal physical product. The above table shows that the marginal physical product diminishes according to an increase in the number of chefs. (b) The marginal revenue product is measured by considering the price and number of pizzas per day. The following is a measurement of marginal revenue product when the price is $9 per pizza. The above table shows that the marginal revenue product diminishes according to an increase in the number of pizzas. The number of pizzas sold is increasing at diminishing rate. (c) The pizza parlor would hire three chefs if the wages rate increases to $100. The marginal revenue product is $360 which would not allow a pizza parlor to employ four chefs. If the wages of chefs are increased to $125, then a pizza parlor would be able to employ 2 chefs considering its marginal revenue product. (d) If the price of pizza is increased $12 from $9, then it would lead to increase the marginal revenue product of a pizza parlor. The following is a measurement of the marginal revenue product when the price of pizza is $12. The above table shows that the firm would be able to hire more chefs due to an increase in the marginal revenue product. Pizza parlor can hire four chefs at the rate of $ 100 and three chefs at the rate of $ 125 per chefs.
Highly skilled labor gets higher salary because the labor has the knowledge of the latest techniques in the market. Marginal productivity of the worker is equal to the change in the output divided by the change in the employed labors. Professors provide services to the students to get educated. Newly appointed professors contribute extra knowledge to educate the students. The marginal productivity of professors is always higher because they often provide additional knowledge to the students.