marginal cost of labor `\(=\)` marginal benefit of labor Firm hires `\(L^*\)` optimal amount of labor where `\(w=MRP_L\)` # Labor Supply and Firm's Demand for Labor Hiring more labor increases output (i.e. hi-purple when **hiring more labor**, as more labor `\(\Delta L\)` creates:ġ.hi: Increases output and thus revenue Firm only demands inputs to the extent they **contribute to producing sellable output** Can do the same for *any* factor market
Empirically, about 70% of total cost of production comes from labor salary for a skilled worker must be high enough to keep them at their current firm, and not be attracted to other firms/industries green: a producer of hammers buys steel, pays (the opportunity cost) for "taking" the steel away from alternative uses Firms not only pay for direct use of a factor, but also indirectly for *not using* it in an alternate process! # Factor Market Prices and Opportunity Costs hi-blue: willingness of firms to pay for/hire factor services landowners, workers, capitalists, resource owners, suppliers hi-red: willingness of factor owners to accept and sell/rent their services to firms The price of a factor is governed by the same market forces as output: Partnership and S corporation net income # Firms’ Payments to Factors are Income To Households Recall a firm uses technology that buys inputs, transforms them, and sells output # Ryan Safner Assistant Professor of Economics ryansafner/microF20 Class: center, middle, inverse, title-slide
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