Page 727 - Krugmans Economics for AP Text Book_Neat

table 69.2

Value of the Marginal Product of Labor for George and Martha’s Farm

Quantity of Marginal product
labor of labor Value of the marginal Section 13 Factor Markets
L MPL product of labor
(workers) (bushels per worker) VMPL P × MPL
0
19 $380
1
17 340
2
15 300
3
13 260
4
11 220
5
9 180
6
7 140
7
5 100
8

marginal product of each worker is less than that of the preceding worker because
the marginal product of each worker is less than that of the preceding worker.
We have just seen that to maximize profit, George and Martha hire workers until the
wage rate is equal to the value of the marginal product of the last worker employed.
Let’s use the example to see how this principle really works.

figure 69.3

The Value of the Wage rate,
VMPL
Marginal Product Curve
This curve shows how the value of the
marginal product of labor depends on Optimal
the number of workers employed. It $400 point
slopes downward because of diminish-
ing returns to labor in production. To
maximize profit, George and Martha 300
choose the level of employment at
which the value of the marginal prod- A
uct of labor is equal to the market Market 200
wage rate Value of the
wage rate. For example, at a wage rate marginal product
of $200 the profit-maximizing level of of labor curve,
employment is 5 workers, shown by 100 VMPL
point A. The value of the marginal prod-
uct curve of a factor is the producer’s
individual demand curve for that factor.
0 1 2 3 4 5 6 7 8
Quantity of labor
(workers)
Profit-maximizing
number of workers

module 69 Introduction and Factor Demand 685