This chapter discussed the factors of production, or the inputs used to produce goods and services. Labor is the most important factor of production because workers receive most of the total income earned in the U.S. economy. When deciding how many workers a firm will hire, we first make two assumptions: the firm is competitive (or a price taker with little influence in the market) and the firm is profit-maximizing. A competitive, profit maximizing firm hires workers up to the point where the value of the marginal product of labor(MP*P), where P=price of output, equals wage. Therefore, the value-of-marginal-product curve is the labor-demand curve for this firm (because it is used to decide how many workers to hire).
I think this chapter is a bit weird, since we're thinking of what is needed to create a tangible product (a derivative demand). I think after reading it several times, it's starting to make sense; however, I would like to practice finding value of marginal product, et cetera.
Question:
1.) Because the demand curve is the value-of-marginal-product curve what is the supply curve? (Since normally, we find where demand and supply cross?) Would this be the wage, since the firm hires workers up to the point where the VMPL=W?
2.) How does a graph for market of laborers translate into a graph for market of the product?
