econ- perfect competition supply shift and marginal cost

Any changes in the market wage will also shift the firm’s MRC and supply.įirm’s Labor Demand: The firm’s demand curve is equal to the marginal revenue product (MRP) of the firm’s workers and it is downward sloping. Also, the market wage equals the cost of hiring more workers so the supply curve equals the marginal resource cost (MRC). Since each firm can hire as many workers as it wants at the market wage, the labor supply curve for the firms is horizontal at the market wage. If the wage paid to all workers was $10, then in Chart B above, the firm would hire 4 workers because the marginal revenue product for 4th worker is $10 and that equals the marginal factor cost of that worker. The profit maximizing number of workers to hire is where the MRC = MRP. In a competitive labor market, the MRC will be the equilibrium wage.Ī firm will hire workers as long as the MRP is greater than the MRC.

Marginal Resource Cost (MRC): Sometimes called Marginal Factor Cost (MFC) is the firm’s cost of hiring more workers.

Econ- perfect competition supply shift and marginal cost