Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Starter –
Read article
– List
factors
influencing
S&D of
labour
End
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Objective – To know - What are the determinants
of elasticity of demand for labour
Learning objective: What is derived
demand and MRP?
Outcomes – All – Definition of derived demand
and MRP, Diagram for MRP analysis of
diagram-Explain
Some - Who uses MRP - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Past paper Q - June 2002
4. (a) Explain the factors which determine the
marginal’s revenue product of labour [10]
(b) Discuss the extent to which marginal
revenue product is the crucial factor in
explaining why top soccer players earn so much
more than waiters and waitresses [15]
REMEMBER Q’S ARE NOW Q 15 AND 20
MARKS!
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
The demand for labour is a derived demand.
Firms only demand employees because of
the demand for actual products.
We only want you for your output
Increase in output
Increase in demand
for labour
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
People are employed because of the value of their
output. This depends on:
– The extra output that each extra worker produces (Marginal
Product /marginal physical product) MP
– The extra revenue this extra worker generates when it is
sold (Marginal Revenue) MR
the value of the output produced by an extra worker is
called the Marginal Revenue Product (MRP)
MRP=MPxMR
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Assumptions: Labour is the only variable factor of
production
Labour is homogeneous- labour cannot dictate
price
The labour market is perfectly competitive so no
one employer can influence the wage rate
The firm operates in a perfectly competitive
product market
DOES THIS EXIST IN REALITY?
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
MRPWhy does it slope?
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
The demand for labour is downward sloping due
to the law of diminishing returns, which states:
As successive units of a homogeneous variable
factor of production are added to a fixed factor,
the increments to total output will rise first and
then eventually diminish, ceteris paribus.
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
1. Get into two/three teams – You will be in
charge of making burgers2. Nominate 1 person to cut shapes- no one can
help them – the rest of you keep count of
productivity
3. To make a burger you have to cut out from the
template and then transport and stick up for
sale using your blue tack onto the flip chart
paper, starting at month 1.
4. You start when told and finish when told (2
mins)-only finished burgers counted
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Firm sells
Number Total
of
output
workers
products for £2
Wage rate is
1
constant at £10
2
1. Fill in Gaps
2. How many
workers
should they
employ?
3
4
5
6
Marginal
Product
MP
Marginal
revenue
MR
Marginal
Revenue
Product
MRP
Total
Revenue
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
1. Nominate 1 person to cut shapes- no one can
help them – the rest of you keep count of
productivity
2. To make a burger you have to cut out from the
template and then transport and stick up for
sale using your blue tack onto the flip chart
paper, starting at month 1.
3. You start when told and finish when told (2
mins)-only finished burgers counted
End
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
How did you get on? What fresources/factors are
represented in the game so far?)
1. Total up your sheet then2. Nominate another person – 1 to cut and one
to stick shapes no one can help them – the rest
of you keep count of productivity
3. You start when told and finish when told (2
mins)-only finished burgers counted
End
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
How did you get on? Did you do better? What
economic key terms were we proving
1. Total up your sheet then2. Nominate another person (3 now) – 1 to cut
and one to stick shapes no one can help them
– the rest of you keep count of productivity
3. You start when told and finish when told (2
mins)-only finished burgers counted
End
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
How did you get on? Did you do better?
Total up your sheet then1. Nominate another person (4 now) – 1 to cut
and one to stick shapes no one can help them
– the rest of you keep count of productivity
2. You start when told and finish when told (2
mins)-only finished burgers counted
End
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Task
How much labour
to employ? Draw
your data into a
graph showing
your results
Then COMMENT
on the diagram
using economic
terms.
Wage
Rate
W
MCL
MRP
Q1
Q2
Q3 Q4
Quantity of Labour
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Profit maximising level of employment occurs
where MCf = MRP
MCL = Supply of
Labour
MRP = MPP x P = Demand for Labour
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
How do we measure the productivity of workers
in the service sector, eg teacher, supermarket
cashier, nurse, secretary?
Is there a price that can be put on all workers’
output?
MRP theory requires us to assume we can
measure the output of each worker.
In reality job evaluation is required to set
performance targets
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
MRP is difficult to measure as difficult to isolate:
Individuals contribution when working in a team
Contribution made by labour & Capital
Difficult to measure the Marginal Product of some
workers in the tertiary sector e.g. surgeons
5 hip replacements vrs 1 heart/lung transplant
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Knowledge of the MRP curve will let us work out
how many workers will be employed but
doesn’t tell us how the wage rate is
determined.
Wage levels depend upon the interaction of
demand and supply of labour
ONLY WORKS IN PERFECT COMP – I.E. A MODEL!
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
What might cause the demand for
labour to shift from DL1 to DL2?
1. Increase in Productivity
2. Increase in demand for the
product
3. Increase in the price of the
product
4. Increase in the price of capital
DL2
DL1
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Task 1 - complete exercise 7.1 on Labour market
equilibrium – (2 minutes)
(Draw diagram showing analysis of the effects on
labour market equilibrium if there is a fall in
selling price of a firms product
Then - “What does it depend on?”
Learning objective: Demand for labour what is MRP?
Outcomes – All – Definition of derived demand and MRP, Diagram for MRP
Most - analysis of diagram-Explain results of experiment
Some - Who uses MRP? - Explain
Plenary
Who uses MRP?
What are the factors discussed today?
What is most important and WHY?