Learning objective: Demand for labour what is MRP? Outcomes – All – Definition of derived demand...

Learning objective: Demand for labour what is MRP?Outcomes – All – Definition of derived demand and MRP, Diagram for MRP Most - analysis of diagram-Explain results of experimentSome - Who uses MRP? - Explain

End

Starter – Read article – List factors influencing S&D of

labour

http://en.mercopress.com/2012/09/18/falklands-immigration-review-to-address-labour-demand-from-strong-economy







Objective – To know - What are the determinants of elasticity of demand for labour

Learning objective: What is derived demand and MRP?

Outcomes – All – Definition of derived demand and MRP, Diagram for MRP analysis of diagram-Explain

Some - Who uses MRP - Explain


Past paper Q - June 20024. (a) Explain the factors which determine the marginal’s revenue product of labour [10] (b) Discuss the extent to which marginal revenue product is the crucial factor in explaining why top soccer players earn so much more than waiters and waitresses [15]REMEMBER Q’S ARE NOW Q 15 AND 20 MARKS!


Derived Demand

The demand for labour is a derived demand.Firms only demand employees because ofthe demand for actual products.

We only want you for your output

Increase in outputIncrease in demand

for labour


Marginal Revenue Product

People are employed because of the value of their output. This depends on:– The extra output that each extra worker produces (Marginal

Product /marginal physical product) MP– The extra revenue this extra worker generates when it is

sold (Marginal Revenue) MR

the value of the output produced by an extra worker is called the Marginal Revenue Product (MRP)

MRP=MPxMR


Marginal Revenue Productivity

Assumptions: Labour is the only variable factor of production

Labour is homogeneous- labour cannot dictate price

The labour market is perfectly competitive so no one employer can influence the wage rate

The firm operates in a perfectly competitive product market

DOES THIS EXIST IN REALITY?


MRP- Why does it slope?


The Demand for Labour – Why slope?

The demand for labour is downward sloping due to the law of diminishing returns, which states:

As successive units of a homogeneous variable factor of production are added to a fixed factor, the increments to total output will rise first and then eventually diminish, ceteris paribus.


1. Get into two/three teams – You will be in charge of making burgers-

2. Nominate 1 person to cut shapes- no one can help them – the rest of you keep count of productivity

3. To make a burger you have to cut out from the template and then transport and stick up for sale using your blue tack onto the flip chart paper, starting at month 1.

4. You start when told and finish when told (2 mins)-only finished burgers counted


Number of

workers

Total output

Marginal Product

MP

Marginal revenue

MR

Marginal Revenue Product

MRP

Total Revenue

1

2

3

4

5

6

Firm sells

products for £2

Wage rate is

constant at £10

1. Fill in Gaps

2. How many workers should they employ?


Manton Burger


Manton Burger


Manton Burger


Manton Burger


Manton Burger


Manton Burger


Manton Burger


2 Minute Timer

End

1. Nominate 1 person to cut shapes- no one can help them – the rest of you keep count of productivity

2. To make a burger you have to cut out from the template and then transport and stick up for sale using your blue tack onto the flip chart paper, starting at month 1.



2 Minute Timer

End

How did you get on? What fresources/factors are represented in the game so far?)1. Total up your sheet then-2. Nominate another person – 1 to cut and one

to stick shapes no one can help them – the rest of you keep count of productivity



2 Minute Timer

End

How did you get on? Did you do better? What economic key terms were we proving1. Total up your sheet then-2. Nominate another person (3 now) – 1 to cut

and one to stick shapes no one can help them – the rest of you keep count of productivity



2 Minute Timer

End

How did you get on? Did you do better?

Total up your sheet then-1. Nominate another person (4 now) – 1 to cut

and one to stick shapes no one can help them – the rest of you keep count of productivity



MRP on Diagram

Task How much labourto employ? Draw

your data into a graph showing your results

Then COMMENT on the diagram using economic terms.

Wage Rate

MRP

MCLW

Quantity of LabourQ1 Q2 Q3 Q4


Equilibrium Level of employment

Profit maximising level of employment occurs where MCf = MRP

MCL = Supply of Labour

MRP = MPP x P = Demand for Labour


Problems with MRP (Marginal Revenue Productivity Theory

How do we measure the productivity of workers in the service sector, eg teacher, supermarket cashier, nurse, secretary?

Is there a price that can be put on all workers’ output?

MRP theory requires us to assume we can measure the output of each worker.

In reality job evaluation is required to set performance targets


But in reality….

MRP is difficult to measure as difficult to isolate:

Individuals contribution when working in a teamContribution made by labour & CapitalDifficult to measure the Marginal Product of some

workers in the tertiary sector e.g. surgeons

5 hip replacements vrs 1 heart/lung transplant


Problems with Marginal Revenue Productivity Theory

Knowledge of the MRP curve will let us work out how many workers will be employed but doesn’t tell us how the wage rate is determined.

Wage levels depend upon the interaction of demand and supply of labour

ONLY WORKS IN PERFECT COMP – I.E. A MODEL!


Demand Curve for Labour

DL1

DL2

What might cause the demand for labour to shift from DL1 to DL2?

1. Increase in Productivity

2. Increase in demand for the product

3. Increase in the price of the product

4. Increase in the price of capital


Task 1 - complete exercise 7.1 on Labour market equilibrium – (2 minutes)

(Draw diagram showing analysis of the effects on labour market equilibrium if there is a fall in selling price of a firms product

Then - “What does it depend on?”


Plenary

Who uses MRP?What are the factors discussed today?What is most important and WHY?

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Learning objective: Demand for labour what is MRP? Outcomes – All – Definition of derived demand...

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