1. AP Economics Warm Up Question: There is an economic recession! List and explain at least five different types of laborers that are losing their jobs.

2. Do you remember this economic model? Labor will only be hired when… Consumers are buying the g&s these laborers make!!

3. Input Demand Derived Demand: The demand for resources (inputs) is dependent on the demand for the outputs those resources can be used to produce We need more workers when their good or service is in demand!

4. What determines how much a person is paid the service he/she provides? –Skill needed, education level needed, scarcity of talent, value society places on output, number of consumers of product, etc. Peyton Manning makes over $15,000,000 between his salary and endorsement deals; a teacher working the same amount of years makes just over $50,000. Why does one earn more than the other?

5. A firm must determine: 1. how many units each worker produces 2. how much is earned from each unit produced 3. how much each unit costs to produce A firm will never hire a worker who costs more than he/she earns.

6. Marginal Product of Labor (MP L ): the additional output produced by one additional unit of labor What do you expect to happen to the MP L in the short run? Explain. –Increase due to the fixed scale of operations; more workers leads to eventual inefficiencies.

7. Marginal Revenue Product (MRP): The additional revenue a firm earns by employing one additional unit of input, ceteris paribus. MRP L = MP L × P X {where P X is the price of the product}

8. Short Run Conditions: Total Labor Units Total Product Marginal Product of Labor Price (P X )Marginal Revenue Product (MP L × P X ) 00 -- 110$.50 225 335 440 542 6 - +10 +15 +10 +5 +2 0 $.50 $5.00 $7.50 $5.00 $2.50 $1.00 $0

9. When does a firm stop hiring labor? RULE: a profit maximizing firm will add inputs as long as the marginal revenue product of that input is equal to or exceeds the market price of that input; MRP L ≥ P L

10. According to the chart above, if the workers are being paid $4 per hour, how many workers would be hired? Total Labor Units 0 1 2 3 4 5 6 Marginal Revenue Product - $5.00 $7.50 $5.00 $2.50 $1.00 $0

11. ANSWER: 3 Workers!! This firm will keep hiring as long as the MRP L is greater than (or equal to) the wage paid to the laborer. In other words, keep hiring as long as that worker’s output can cover the cost of the hire.

12. Some Practice Problems A bookstore clerk observes that for each additional security guard hired, there is some reduction in the number of books stolen. The store devised the following schedule: # of Guards Total Value of Books Saved MRP L 1$800 21,100 31,300 41,400 51,450 $800 $300 $200 $100 $50 The security guards are paid $120 per day. How many guards show this store hire? Explain.

13. If apples sell for $2 per bushel and workers can be hired in a competitive labor market for $30 per day. How many workers should be hired? What if workers unionized and the wage rose to $50? WorkersApple Bushels / day MP L MRP L 00 140 270 390 4100 5105 6102 - 40 30 20 10 5 -2 - $80 60 40 20 10 -4