The Economics of Labor Markets
1. The Markets for the Factors of Production
factors of production: the inputs used to produce goods and services
The Production Function:
Marginal Product of Labor: \(MPL = {dQ \over dL}\)
Value of the Marginal Product of Labor: \(VMPL = P \times MPL\) (from amount of production to dollars)
\(W\) denotes wage, then \(\Delta \text{Profit} = VMPL - W\)
The value-of-marginal-product (VMPL) curve is the labor-demand curve for a competitive, profit-maximizing firm.
Equilibrium:
At the equilibrium point, wage (W) = VMPL
2. Earnings and Discrimination
compensating differential: a difference in wages that arises to offset the nonmonetary characteristics of different jobs
human capital: the accumulation of investments in people, such as education and on-the-job training
The Superstar Phenomenon
Superstars arise in markets that have two characteristics:
- Every customer in the market wants to enjoy the good supplied by the best producer.
- The good is produced with a technology that makes it possible for the best producer to supply every customer at low cost.