Summary
An explanation of how labour supply curves function for both industries and individual firms within a perfectly competitive market model.
Highlights
Assumptions of the Model00:00:14
The model assumes many buyers and sellers, wage-taking firms, homogeneous labour, no barriers to entry, perfect information, and no government intervention.
Industry Labour Supply00:01:04
At the industry level, the labour supply curve is upward sloping. Higher wages attract more workers from other occupations, increasing the total quantity of labour supplied.
Firm Labour Supply00:03:04
Because firms are wage takers in a competitive market, they face a perfectly elastic horizontal supply curve of labour. They must pay the market-determined wage rate.
Wage and Employment Determination00:03:48
A firm's demand for labour is derived from the marginal revenue product (MRP) of its workers. Employment levels for the firm are determined by the intersection of the market wage and the firm's MRP curve.