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Marginal Product of Labor : The change in a firm’s economic output created by hiring an additional laborer. This is from the video “ The Marginal Product of Labor

Marginal Product of Labor: The change in a firm’s economic output created by hiring an additional laborer. This is from the video “The Marginal Product of Labor” in the Principles of Microeconomics course.

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The key idea behind the demand for labor is the marginal product of labor, the increase in a firm's revenues created by hiring an additional laborer. And we're going to see several important things about this marginal product of labor. First, it declines as more labor is added. And this is because the first laborer goes to the most important task, the second laborer goes to the second most important task and so forth. Moreover, firms will hire workers, laborers, as long as the wage is less than the marginal product of labor.


Let's take a look at this in a table. This table shows how a restaurant like McDonald’s might think about hiring janitors. The first janitor is assigned to the most important task - cleaning the restrooms once a day. That task adds $35 an hour to the firm’s revenues. Customers like restaurants with clean restrooms. The second janitor empties the trash, the third janitor hired will also be assigned to cleaning restrooms, now done twice a day - and that use increases revenues by less by $24 an hour. The demand curve for labor is derived from the marginal product of labor. Notice that as the wage goes down, the firm will want to hire more and more janitors and as the firm hires more and more janitors, the marginal product of labor falls.

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