Why is the demand of labor a derived demand? Essay

Custom Student Mr. Teacher ENG 1001-04 7 March 2016

Why is the demand of labor a derived demand?

DQ 1: Why is the demand of labor a derived demand? Explain the shape of the supply of labor curve. What is the relationship between productivity and the wages earned by an employee? What are some factors that determine the level of your income?

The concept of derived demand occurs when the demand of product exists due to demand of another product. In this case, demand of a labor is a form of derived demand, because the amount of labor hired will depend on the demand for products by the firm. When demand for products is high, the firm will need to increase supply as such they will need more labor. When demand of the products is low, the firm will need to decrease supply so they will require less labor. The labor demand curve is negatively sloping because firms will decrease demand for labor should employee wages become too expensive. On the other hand, the relationship between wage and productivity is positive, the higher the amount of wages, the more incline the worker is to work. Some of the factors determining income will be the amount of available labor, working time, and also your personal negotiation with the company.

DQ 2: What is the law of diminishing marginal productivity? Give an example from your workplace of the law of diminishing marginal productivity? Might diminishing marginal productivity impact the costs?

The law of diminishing marginal productivity states that the amount of variable factor in the firm will come to a point when the additional input of a new employee (variable factor) will only to result in a fall in marginal product of the previous employee. In my workplace for example, having too many workers yet too few computers can result in decrease in marginal product. For example, given that we add the sixth worker into the office when there are only five computers around, the sixth worker will have very limited amount of things he can do due to resource constraints, this will bring down the average productivity of each person. In addition, if the office was already small enough, adding an extra person into the room will only make the employees feel uncomfortable, this will affect their level of productivity and thus decrease average productivity. With decrease in productivity, this means that each worker will now be producing less goods, as such average costs of production will increase which can lead to an increase in price of the good.

DQ 3: What is average productivity? What is marginal productivity? Explain the relationship between marginal and average productivity. What would happen to marginal and average productivity if a technological innovation is introduced to the production process?

What is average productivity?
Average productivity is taking the total out put for any given time and dividing by the total number of workers that it took to achieve that output. At my organization we refer to this as UPP or units per person. If we put out a total of 100 units and we have 10 people on the production line then the UPP or average productivity would be 10.

What is marginal productivity?
The additional output obtained by adding an additional unit of a productive resource, such as labor. More precisely, marginal productivity is the change in total output divided by the change in the amount of the productive resource employed. Marginal productivity = change in total output change in amount of productive resource.

Explain the relationship between marginal and average productivity

If
MC > ATC, then ATC is rising.

If
MC = ATC, then ATC is at its low point.

If
MC < ATC, then ATC is falling.

What would happen to marginal and average productivity if a technological innovation is introduced to the production process? While the costs might increase the average productivity should increase as well as the marginal productive will increase as well

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