The wage is the same as the marginal resource cost of labour as long as the labour market is competitive. If the labour market is competitive, then the firm takes a wage from the supply and demand conditions in the labour market. The marginal resource cost is
the change in total cost/the change in labour.
The firm's goal is to maximise profit. As it considers hiring one more worker, it examines the additional cost and the additional revenue from that hiring, and decides whether or not hiring the workers adds or detracts from economic profit. If it adds to profit
the firm wishes to hire the worker. If it detracts from profit, the firm declines to hire the worker.
The firm increases its quantity of workers demanded at lower wages because as labour use increases against fixed inputs, the value of each worker's marginal product declines. (In a competitive product market, this value of marginal product is marginal revenue product.) Hiring workers at low values of marginal product is only justified if wages go lower. The goal of the firm, is profit maximisation. Therefore hiring an additional worker whose value of marginal product was lower than the
wage would cut into profits, not add to them. The firm has an incentive to hire additional workers as long the wage the firm pays is greater than or equal to the marginal revenue product in other words, the value of the marginal product. The last worker hired is not less productive than the first worker hired. The last worker hired is only less marginally productive because of the firm's crowding problem in the short run.
To What Extent can the fall in bus drivers wages between 1988 and 1996 be explained by MRP?
Whilst MRP can explain this fall in wages to some extent, there are various other factors which have led to changes. Marginal means "additional" or "less," depending on whether the total measure is increasing or decreasing. In nearly every instance where both total and marginal values are discussed
in economics, the total value (total product, total cost, total revenue, total profit) is increasing at the and so the respective marginal measure does mean "additional." As long as the total value is increasing, the marginal value will be greater than zero. Of course, the total value could be increasing at an increasing rate or a decreasing rate. If the total value is increasing at an increasing rate, then the marginal value is greater than zero and increasing in value.
The marginal revenue product is defined as the change in total revenue/the change in labour. That means that the marginal revenue product is equal to the marginal revenue * the marginal product. The question the firm is concerned with is this: How much value is each worker's additional
marginal product to the firm? Marginal revenue product is the measure used to answer that question.
The wage is the same as the marginal resource cost of labour as long as the labour market is competitive. If the labour market is competitive, then the firm takes a wage from the supply and demand conditions in the labour market. The marginal resource cost is
the change in total cost/the change in labour.
The firm's goal is to maximise profit. As it considers hiring one more worker, it examines the additional cost and the additional revenue from that hiring, and decides whether or not hiring the workers adds or detracts from economic profit. If it adds to profit
the firm wishes to hire the worker. If it detracts from profit, the firm declines to hire the worker.
The firm increases its quantity of workers demanded at lower wages because as labour use increases against fixed inputs, the value of each worker's marginal product declines. (In a competitive product market, this value of marginal product is marginal revenue product.) Hiring workers at low values of marginal product is only justified if wages go lower. The goal of the firm, is profit maximisation. Therefore hiring an additional worker whose value of marginal product was lower than the
wage would cut into profits, not add to them. The firm has an incentive to hire additional workers as long the wage the firm pays is greater than or equal to the marginal revenue product in other words, the value of the marginal product. The last worker hired is not less productive than the first worker hired. The last worker hired is only less marginally productive because of the firm's crowding problem in the short run.