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CHAPTER 2
LABOR DEMAND
1st Semester, S.Y 2014-2015
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Chapter Outline
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Labor Demand
Derived Demand
Labor Demand Curve
Substitution and Scale Effects
Change in Quantity Labor Demanded
Change in Labor Demand
Non-wage Determinants of Labor
Marginal Revenue Product
Derivation of Marginal Revenue Product
Profit-Maximizing Level of Employment
Elasticity of Labor Demand
Wage Elasticity Coefficient
Determinants of Labor Demand Elasticity
Production Function
Total Product, Marginal Product and Average Product
Three Stages of Production
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Labor Demand
Labor demand
 refers to the number of hours of hiring that an
employer is willing to do based on the various
exogenous (externally determined) variables it is
faced with.
 It is is the quantity of labor services the firm would
employ at each wage.
 A downward-sloping demand curve indicates that
employers will be willing and able to hire more
people at lower wage rates than at higher wage
rates.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Derived Demand
The demand for labor is a derived demand.
That is, it is derived from and directly related to
the demand for the product that the resources
(labor) go to produce.
If the demand for the product rises, then the
demand for the labor that produces the product
increases, too. If the demand for the product
falls, so does the demand for the labor.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Examples of Derived Demand
 For example, if the demand for a university education
falls, so does the demand for university professors.
 If the demand for computers rises, so does the demand
for skilled computer workers.
 The demand for hamburgers leads to the demand for
hamburger workers.
 Microsoft’s demand for labor is derived from the public’s
demand for its software
 The demand for workers in automobile factories is derived
from the demand for automobiles. When the demand for
the final product rises, the demand for labor increases.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Graphical Illustration: Derived Demand
The demand for cars affects the demand for the automobile workers who
produce the cars and their wages. In this example, when the demand for cars
falls, the demand for workers also falls, causing wage rates to fall from P60 to
P50 per hour.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Let’s Check Your Understanding!
Demand for labor is like the demand for any other good. Analyze what factors that
might shift the demand for service crews at Jollibee, a fast food chain. For each
case below, state whether labor demand will increase or decrease, and also state
which of the factors seems to be causing the shift in demand.
1. A new college school opens up across the street from the Jollibee.
2. Customers become much more concerned about clean and
customer-oriented restaurants.
3. A new branch of McDonald’s opens up near the Jollibee’s location.
4. Many customers like the taste of the Jollibee’s new value meals.
5. Because it’s summer season, the demand for Jollibee drinks rises.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Labor Demand Curve
Labor Demand Curve describes the negative or inverse
relationship between the wage rate and the quantity of
labor demanded.
A downward sloping
demand curve indicates
that employers will be
willing and able to hire
more workers at lower
wage rates than at higher
wage
rates,
ceteris
paribus.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Substitution Effect and Scale Effect
This negative relationship between the wage and
the quantity of labor demanded is the result of two
effects:
 Substitution effect
 Scale effect
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Substitution Effect
The substitution effect is the change in
employment resulting from a change in the
relative price of labor, output being held
constant.
 If a decline in the wage rate occurs, firms will
substitute labor for the now relatively more
expensive capital.
 Since capital is fixed in the short run, this
effect can’t occur in the short run.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Scale Effect
The scale effect resulting from a wage increase is a bit
more complex. As the wage rate rises, the scale effect
involves the following chain of effects:
 Higher wages result in higher average and marginal costs of
production,
 Higher average and marginal and average costs result in an
increase in the equilibrium price of the product,
 As the price of the product rises, the equilibrium quantity of
the product demanded declines (a reduction in the "scale" of
production), and
 The reduction in output results in a reduction in the quantity
of all inputs used to produce this product (including this
category of labor).
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Quantity Labor Demanded
Change in quantity labor demanded is caused by the
change in the wage rate. Graphically, a movement along
a demand curve reflects the effect of a change in wage
rate on the quantity of labor demanded.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Market Labor Demand Curve
How many workers will all firms in a labor market want to
employ? This question is answered by the market labor
demand curve.
The market labor demand curve indicates the total
number of workers all firms in a labor market want to
employ at each wage rate. It is found by horizontally
summing across all firms’ individual labor demand curves.
Market labor demand curve slopes downward just like the
labor demand curve of each firm. If a drop in the wage rate
causes each firm in the market to want to employ more
workers, then total quantity demanded will increase as
well.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Market Labor Demand Curve:
Graphical Analysis
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Labor Demand
Change in labor demand is brought by factors other than
a change in the wage rate which causes firms to demand
more or less labor. Graphically, the shift of the labor
demand curve depicts the change in non-wage
determinants.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Non-wage Determinants of Labor
Demand
Non-wage Determinants of Labor Demand. These
are factors that affect labor demand and cause the
labor demand curve to shift. This includes:








Product demand
Productivity
Technology
Non-wage Costs
Numbers of Firms (Employers)
Prices of Another Inputs
Labor Unions
Taxes and Subsidies
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Product Demand
Product Demand. Remember that the demand for
labor is a derived demand—it arises from demand
for firms’ output. Suppose demand increases in a
product market, so that the price there (P) rises.
Then each firm that sells output in that market will
also change its employment decisions. Since
𝑀𝑅𝑃 = 𝑃 𝑥 𝑀𝑃𝐿, the rise in price will cause MRP
to be greater at each level of employment; that is,
the MRP curve of each affected firm will shift
upward.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Productivity
Productivity. Assuming that it does not cause an
offsetting decrease in the product price, a change
in marginal product will shift labor demand in the
same direction.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Technology
Technology. Technological progress changes the firm’s
production function. One type of progress is an increase
in the amount of output that can be produced with a
given collection of inputs.
When many firms in a labor market acquire a new
technology, the market labor demand curve will shift
rightward if the technology is complementary with
labor and leftward if the technology is substitutable for
labor. For example, industrial robots are substitutable for
less-skilled, assembly-line labor, but complementary with
highly skilled labor that programs and repairs the robots.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Non-wage Labor Costs
Non-wage labor costs. A change in non-labor
costs will affect the labor demand to shift. Nonwage labor costs are costs that do not directly vary
with the number of hours worked by the worker.
These include hiring costs, training costs, and
employee benefits.
A rise in non-wage labor costs will shift the market
labor demand curve rightward. A fall in non-wage
labor cost will shift the market labor demand curve
leftward.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Number of Firms
Number of Firms. Firms are continually entering
and leaving labor markets. The entry of new firms
will shift the market labor demand curve rightward
and exit will shift the curve to the left.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Price of Another Input
Price of Another Input. When the price of some
input other than labor changes, the firm will generally
adjust the quantities of all inputs, including labor.
The impact on the labor demand curve will depend
on whether the input is complementary with or
substitutable for labor.
When the price of some other input decreases, the
market labor demand curve may shift rightward or
leftward. It will shift rightward if that other input is
complementary with labor and leftward if the other
input is substitutable for labor.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Change in Number of Labor Unions
Labor Union.
A labor union is a worker
association that bargains with employers over
wages, benefits, and working conditions. Unions
raise wages above the level that would prevail in
competitive markets, they reduce the quantity of
labor demanded, cause some workers to be
unemployed, and reduce the wages in the rest of
the economy.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Let’s Check Your Understanding!
For each case below, determine whether there is a change in
quantity labor demanded or change in labor demand. State what
determinant or factor induces the change.
1.
2.
3.
4.
5.
There is a 10% increase in the hourly wage of factory
workers.
Computer industry booms so more printers are being
assembled.
More labor unions are organized in the construction industry.
The prices of inputs (materials and equipment) sharply fall.
The number of manufacturers producing printers increases.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Firm’s Goals and Constraints
How does the firm decide how many workers to hire? It is
always viewed that firm as an economic decision maker,
is striving to maximize profit. However, the firm faces
constraints as it makes its employment decision. These
constraints can be simple or complex, depending on how
much freedom the firm has to select its inputs. It is
assumed that the firm can vary only its labor, and is stuck
with given quantities of capital and other inputs. This
assumption will fit most closely for a firm using a short-run
horizon. For example, in the short run, a farm might be
able to hire or fire workers, but may be stuck with a given
number of tractors and a given amount of land.
.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Firm’s Constraints
The firm faces three constraints as it decides how
much labor to employ.
1. Its technology determines how much output
the firm can produce with each quantity of
labor.
2. The market price in its product market tells the
firm how much it can sell its output for.
3. The market wage rate in its labor market tells
the firm how much it must pay each worker.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Derivation of the Market Demand
Curve for Labor Units
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Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Marginal Revenue Product
Marginal Revenue Product (MRP) is the
additional revenue generated by employing an
additional factor unit, such as one more unit of
labor. In other words, MRP of labor is the change
in total revenue from hiring one more worker.
For example, if a firm employs one more unit of an
input (labor) and its total revenue rises by P200,
the MRP of labor equals P200.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Derivation of Marginal Revenue Product
Marginal Revenue Product (MRP) can be
calculated in two ways. Mathematically, MRP is
calculated by
𝑀𝑅𝑃 =
∆𝑇𝑅
∆ 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝐿𝑎𝑏𝑜𝑟
or 𝑀𝑅𝑃 = 𝑀𝑅 𝑥 𝑀𝑃𝑃
where 𝑇𝑅 = 𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒, 𝑀𝑅 = 𝑚𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
𝑀𝑃𝑃 = 𝑚𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝑝ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
MRP Schedule (JNE’s Car Wash)
Quantity
of Labor
Marginal
Total
Product of Price per
Total
Product
Labor
Car Wash Revenue
(MPL)
Marginal
Revenue
Product
(MRP)
Wage
0
-
-
100
0
-
-
1
15
15
100
1,500
1,500
300
2
32
17
100
3,200
1,700
300
3
68
36
100
6,800
3,600
300
4
80
12
100
8,000
1,200
300
5
83
3
100
8,300
300
300
6
85
2
100
8,500
200
300
7
86
1
100
8,600
100
300
8
86
-3
100
8,600
0
300
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Profit-Maximizing Employment Level
Since that decision will add MRP to the firm’s
revenue each day, and the daily wage W to its
cost, the firm will earn the highest possible profit
by following this simple guideline:
Hire another worker when 𝑀𝑅𝑃 > 𝑊 , but not
when 𝑀𝑅𝑃 < 𝑊.
To maximize profit, the firm should hire the
number of workers such that 𝑀𝑅𝑃 = 𝑊. That is,
where the MRP curve intersects the wage line.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Profit-Maximizing Employment Level
3,900
3,600
3,300
3,000
2,700
2,400
2,100
1,800
1,500
1,200
900
600
Wage
The firm should take
any action that adds
more to revenue than to
cost. In a labor market,
it
should
continue
increasing the size of its
workforce as long as the
marginal
revenue
product of labor (MRP)
exceeds the wage rate.
The profit maximizing
level of employment for
JNE’s Car Wash is five
workers.
300
0
1
2
3
4
5
6
7
8
MRP
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Elasticity of Labor Demand
If the wage rate rises, firms will cut back on the labor they
hire. How much they cut back depends on the elasticity of
demand for labor, which is the percentage change in the
quantity demanded of labor divided by the percentage
change in the price of labor (the wage rate). It is
expressed by the formula:
𝐸𝐿 =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝐿𝑎𝑏𝑜𝑟
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑊𝑎𝑔𝑒 𝑅𝑎𝑡𝑒
For example, when the wage rate changes by 20 percent, the
quantity demanded of a particular type of labor changes by 40
percent. The elasticity of demand for this type of labor is 2 (40
percent / 20 percent), and the demand between the old wage
rate and the new wage rate is elastic.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Wage Elasticity Coefficient
The wage elasticity coefficient measures the
responsiveness of the quantity demanded of labor to the
wage rate.
𝑄𝐿2 − 𝑄𝐿1
𝐸𝐿 =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝐿𝑎𝑏𝑜𝑟
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑊𝑎𝑔𝑒 𝑅𝑎𝑡𝑒
where 𝑄𝐿1 − Original Labor Quantity Demanded
𝑄𝐿2 − New Labor Quantity Demanded
𝑄𝐿1 + 𝑄𝐿2
2
𝐸𝐿 =
𝑊2 − 𝑊1
𝑊1 + 𝑊2
2
𝑃1 − Original Wage
𝑃2 − New Wage
Elastic labor demand ( 𝑬𝑳 > 𝟏 ) implies that percentage change in quantity labor
demanded is greater that percentage change in wage.
Elastic labor demand ( 𝑬𝑳 < 𝟏 ) implies that percentage change in quantity labor
demanded is less than percentage change in wage.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Determinants of Elasticity of Labor
Demand
1. The elasticity of product demand.
2. The ratio of labor costs to total costs.
3. The number of substitute inputs.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Determinants of Elasticity of Labor
Demand
1. Elasticity of Product Demand. If the demand for
the product that labor produces is highly elastic, a
small percentage increase in price (e.g., owing to a
wage increase that shifts the supply curve for the
product leftward) will decrease the quantity
demanded of the product by a relatively large
percentage. In turn, this will greatly reduce the
quantity of labor needed to produce the product,
implying that the demand for labor is highly elastic
too.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Determinants of Elasticity of Labor
Demand
1. Elasticity of Product Demand. The relationship
between the elasticity of demand for the product and
the elasticity of demand for labor is as follows:
 The higher the elasticity of demand for the product, the
higher the elasticity of demand for the labor that
produces the product.
 The lower the elasticity of demand for the product, the
lower the elasticity of demand for the labor that produces
the product.
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Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Determinants of Elasticity of Labor
Demand
2. Ratio of Labor Costs to Total Costs. Labor costs are a
part of total costs. Consider two situations: in one, labor
costs are 90 percent of total costs, and in the other, labor
costs are only 5 percent of total costs. Then wages
increase by P20 per hour. Total costs are affected more
when labor costs are 90 percent of total costs (the P20-perhour wage increase is being applied to 90 percent of all
costs) than when labor costs are only 5 percent. Thus, price
rises more when labor costs are a larger percentage of total
costs. And, of course, the more price rises, the more the
quantity demanded of the product falls. Therefore, labor,
being a derived demand, is affected more.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Determinants of Elasticity of Labor
Demand
2. Ratio of Labor Costs to Total Costs. The
relationship between the ratio of labor cost to total cost
and the elasticity of demand for labor is as follows:
 The higher the ratio of labor cost to total cost, the
higher the elasticity of demand for labor (i.e., the
greater the cutback in labor for any given wage
increase).
 The lower the ratio of labor cost to total cost, the lower
the elasticity of demand for labor (i.e., the less the
cutback in labor for any given wage increase).
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Determinants of Elasticity of Labor
Demand
3. Number of Substitute Inputs. The more
substitutes labor has, the more sensitive buyers of
labor will be to a change in its price. The more
factors that can be substituted for labor, the more
likely it is that firms will cut back on their use of
labor if its price rises.
 The more substitutes for labor, the higher the
elasticity of demand for labor.
 The fewer substitutes for labor, the lower the
elasticity of demand for labor.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Estimates of DL Elasticity
 Most estimates of elasticity indicates the
overall long-run elasticity of demand is
about -1.0.
– A 1% rise in the wage rate will lower the
quantity demanded of labor by 1%.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Significance of DL Elasticity
Labor unions
 Unions can achieve greater wage gains when
the labor demand curve is more inelastic.
Minimum wage
 The employment decline of a hike in the
minimum wage will be larger when the labor
demand curve for affected workers is more
elastic.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Significance of DL Elasticity
 Total Wages depend on the labor demand
elasticity
w/ inelastic demand, higher wages lead to
increased total wages
w/ elastic demand, higher wages lead to
decreased total wages
 Labor will work to make labor demand more
inelastic, which makes it possible to increase
wages, decrease hours & preserve
employment.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Production Function
A production function shows the relationship
between inputs and outputs.
Assume that only two inputs are used to make a
product – labor (L) and capital (K). In the short
run, at least one input is fixed.
The total product for a firm in the short run is:
𝑇𝑃 = 𝑓(𝐾, 𝐿), where K is fixed.
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BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
TP, MP, AP
Total product (TP) is the total product produced
by each combination of labor and the fixed
amount of capital.
Marginal product (MP) is the change in total
product associated with the addition of one more
unit of labor.
Average product (AP) is the total product divided
by the number of units of labor.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS
Stages of Production (Revisited)
Total Product
35
15
30
25
23
Stage I
10
TP
Stage II
17
Stage III
10
5
4
0
1
2
3
4
5
6
7
8
9
10
Quantity of Input
Marginal, Average Product
8
6
5
4
6
5.8
5.7
5.6
5
5.2
4.6
4
4
3.3
3
AP
1
0
0
1
2
3
4
5
6
7
8
9
-2
10
-4
-5
-6
Average
Product
0
1
2
3
4
5
6
7
8
9
10
0
4
10
17
23
28
31
32
32
30
25
0
4
6
7
6
5
3
1
0
-2
-5
--4
5
5.7
5.8
5.6
5.2
4.6
4
3.3
2.5
2.5
2
-2
Marginal
Product
Stage 1: characterized by increasing
productivity of any input used resulting
in increasing level of output.
7
6
Total
Product
32
28
25
20
32
31
30
Qunatity of
Labor
MP
Quantity of Input
Stage 2: characterized by decreasing
productivity of input resulting in output
still increasing but at a slower rate
.Stage 3: characterized by further
decreasing productivity of input finally
resulting in a decline in total production.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
ECON 125 – LABOR ECONOMICS