ECON 103

What determines wages and hiring?

Name: Business Tutor
Address: Burnaby, BC, CA
Telephone: +1-604-916-5838
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Follow marginal product into hiring, then explore labour demand, supply, wage floors and why earnings differ. Learn with moving diagrams and solve 10 questions with worked answers.

One firm’s hiring · Step 1 of 12

Workers help a firm sell its output

Moonfern Lanterns: output per day

VMPL: value of the extra outputDaily wage: $20

Workers	Output	MPL	VMPL ($)
0	0	—	—
1	12	12	$36
2	22	10	$30
3	30	8	$24
4	36	6	$18
5	40	4	$12

MPL is extra output; VMPL values it at the output price.

One firm’s hiring · Step 1 of 12

Workers help a firm sell its output

Invented Moonfern Lanterns sells glow lanterns in Mossglow Hollow as a competitive firm, taking the output price as given. Its demand for workers comes from demand for lanterns: this is derived demand. Extra output matters because the firm can sell it.

Try it: Change the lantern price while daily output stays fixed.

Price per glow lantern ($)$3

Output price

First VMPL

$36

Value of extra output = output price × extra lanterns.

First worker: (3 × 12) = $36 per day.

The output price changes the value of labour even when physical output does not change.

Check yourself

Why is labour demand called derived demand?

Question 1 of 10Core

Read a production table

Moonfern Lanterns is an invented competitive firm taking the lantern price and the daily wage as given; hiring changes no cost other than wages. Zero workers make zero lanterns per day; one through five workers make 12, 22, 30, 36, 40 respectively, with machines fixed. At most five whole workers can be hired. Include a worker whose VMPL equals the wage. The output price is $3 per lantern and the daily wage is $20 per worker. Find each worker’s MPL and VMPL, the number hired and output produced. Explain why the firm stops at that worker count, or whether the table limits what you can conclude.

Given

Output with 1 workers (lanterns per day)12

Output with 2 workers (lanterns per day)22

Output with 3 workers (lanterns per day)30

Output with 4 workers (lanterns per day)36

Output with 5 workers (lanterns per day)40

Output price per lantern$3

Daily wage per worker$20

Solution

Moonfern Lanterns: output per day

Workers	Output	MPL	VMPL ($)
0	0	—	—
1	12	?	?
2	22	?	?
3	30	?	?
4	36	?	?
5	40	?	?

MPL is extra output; VMPL values it at the output price.

Read the question and the givens first. Try the first part yourself, then press Start solving and open the working to check.

MPL, workers 1–5

VMPL, workers 1–5

Workers; output

Last; next margin

Exam coming up and the value of the marginal product still feels slippery?

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What determines wages and hiring?

Workers help a firm sell its output

Workers help a firm sell its output

Read a production table

Exam coming up and the value of the marginal product still feels slippery?

Questions, answered.

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