Page 743 - Krugmans Economics for AP Text Book_Neat

figure 71.3

Firm Labor Demand with Wage
rate,
Imperfect Competition MRPL Section 13 Factor Markets
A firm’s labor demand curve is the marginal rev-
enue product of labor curve, which differs from the
value of the marginal product of labor curve when
there is imperfect competition in the product mar-
ket (as with a monopoly, for example). With perfect
competition, the marginal revenue product of labor
(MPL × MR ) and the value of the marginal product
of labor (MPL × P) are the same because MR = P.

Labor demand
curve, MRPL

Quantity of labor
(workers)

that with perfect competition in the labor market, the additional cost of hiring another
A monopsonist is a single buyer in a factor
worker (the MFCL) is always equal to the market wage, and the labor supply curve faced
market. A market in which there is a
by an individual firm is horizontal, as shown in Figure 71.4.
monopsonist is a monopsony.
The labor supply curve faced by a firm is very different in a labor market character-
ized by imperfect competition: it is upward sloping and the marginal factor cost is
above the market wage. Unlike a perfect competitor that is small and cannot affect the
market, a firm in an imperfectly competitive labor market is large enough to affect the
market wage. For example, a labor market in which there is only one firm hiring labor
is called a monopsony. A monopsonist is the single buyer of a factor. Perhaps you’ve

figure 71.4

Firm Labor Supply in a Perfectly Wage
rate,
Competitive Labor Market MFCL
In a perfectly competitive labor market, the labor Firm labor
supply curve faced by an individual firm is horizon- supply curve,
tal at the market equilibrium wage because the Marginal
firm is so small relative to the market that it can factor cost
hire all the labor that it wants at the market wage. of labor
Equilibrium
For this reason, the labor supply curve for a firm in market wage W*
a perfectly competitive labor market is equivalent
to the marginal factor cost of labor curve.

Quantity of labor
(workers)

module 71 The Market for Labor 701