Using MRP to explain Demand for Labour.

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Using MRP to explain Demand for Labour             

Adrian Albon

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.

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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 ...

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