How do firms estimate their demand for labor?

How do firms estimate their demand for labor?

How does the labor-leisure trade-off determine the supply of labor?

Use the concepts discussed in this chapter to explain how a company like The Wisconsin Cheeseman can maximize its profits.

We showed in this chapter that a profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor. But, as we saw in Chapter 6, a profit-maximizing firm will produce the quantity of output such that price equals marginal cost. Are these two rules inconsistent?

Consider an industry employing skilled technicians and low-skilled workers together with machines to produce a good. A new technology comes along that performs the low-skill tasks, but needs more maintenance. How would the adoption of this technology affect the following?

a. The wage for skilled technicians

b. A firm’s demand for low-skilled workers

c. Suppose the market price of the product increases. How would this affect the equilibrium in the labor market?


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