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Chapter 14: Q. 14 (page 350)

What is a perfectly competitive labor market?

Short Answer

Expert verified

In a completely competitive labor market, businesses can hire as many people as they want at the going market wage.

Step by step solution

01

Definition

Perfectly competitive labor market:

Each firm is a wage taker in a completely competitive labor market, where the wage rate is set by the industry rather than by the individual firm.

02

Explanation

A perfectly competitive labour market is one in which businesses can hire as much workers as they want at market rates. Consider secretaries in a big metropolis. Employers who require secretaries will most likely be able to hire as many as they require if they pay the going salary rate. This means that the market will determine the true equilibrium pay, and the labor supply to each particular firm will be completely elastic at the market rate.

03

Conclusion

Therefore, this allows businesses to hire as many workers as they want at market rates.

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Most popular questions from this chapter

Are unions and technological improvements complementary? Why or why not?

Would you expect the presence of labor unions to lead to higher or lower pay for worker-members? Would you expect a higher or lower quantity of workers hired by those employers? Explain briefly.

Table 14.11 shows levels of employment (Labor), the marginal product at each of those levels, and a monopoly鈥檚 marginal revenue.

LaborMarginal product of laborPrice of the product
110\(10
28\)7
37\(5
45\)4
53\(2
61\)1

a. What is the monopoly鈥檚 marginal revenue product at each level of employment?

b. If the monopoly operates in a perfectly competitive labor market where the going market wage is $20, what is the firm鈥檚 profit maximizing level of employment?

Table 14.12 shows the quantity demanded and supplied in the labor market for driving city buses in the town of Unionville, where all the bus drivers belong to a union.

Wage per hourQuantity of workers demandedQuantity of workers supplied
\(1412,0006,000
\)1610,0007,000
\(188,0008,000
\)206,0009,000
\(224,00010,000
\)242,00011,000
  1. What would the equilibrium wage and quantity be in this market if no union existed?
  2. Assume that the union has enough negotiating power to raise the wage to $4 per hour higher than it would otherwise be. Is there now excess demand or excess supply of labor?

Table 14.10 shows levels of employment (Labor), the marginal product at each of those levels, and the price at which the firm can sell output in the perfectly competitive market where it operates.

LaborMarginal product of LaborPrice of the product
110\(4
28\)4
37\(4
45\)4
53\(4
61\)4
  1. What is the value of the marginal product at each level of labor?
  2. If the firm operates in a perfectly competitive labor market where the going market wage is $12, what is the firm鈥檚 profit maximizing level of employment?
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