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Created with Fabric.js 1.4.5 The Demand for Labour Labour is a factor of demand A firms demand for labouris determined from it's decisionto supply goods in a market This means it has derived demand Profit When a firm is deciding on how many workers to hire they see how much profiteach of them can bring inTo maximize profit, firms will employ workers upto the point where the two curves meetBelow this level of employment, hiring anotherworker would increase profitAbove this level of employment, hiring another workerwould decrease profit Why is Employing Large Amounts of Labour is Not Always a Good Thing? 1 employee is hired and they produce 100 productsAnother worker is hired and together they produce 170 productsWhen a third worker is hired they produce 230 goodsbetween them (Marginal Product) *If a fourth worker is hired, eventually the amount ofgoods they produce will begin to diminishThis shows the Law of Diminishing Marginal Product * * The Law of Diminishing Marginal Product is when each additionalworker contributes less toproduction Background Information Decisions *Marginal Product?The marginal product of labouris the increase in the amount of output from an additional unit of labour Firms are price takers therfore,they accept the price and wagesgiven by the market They can then decide how many workers they want to hire and how many products they want tosell Firms are profit maximizing. They aim to make as much profit as they can therefore, their supply of products and their demand forworkers is determined by its goalof maximizing profit
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