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Labour Economics

Labour Economics encompasses the relationship between workers (the supply of labour) and the employers (the demand of labour). The relationship between these control the wage, employment levels, and the structure of the marekt. The government is also an important agent in the market. To determine employment and wage, which is quantity and price, we use the neoclassical supply and demand model.

Although labour economics shares many similarities with other types of markets and areas of economics, labour economics is unique in four main ways. First, is the diversity of its agents, as different groups within a population have different goals. Second, is the sociological component, demonstrated by institutional and legislative complications, such as labour laws implemented by the government. The third difference of labour economics is that it has to use finite information, as worker productivity is difficult to accurately measure. The last difference of labour economics is that price has multiple functions since wage serves different purposes, such as motivation for work effort and risk and a return for education.

The study of labour economics entails the study of the supply curve (S), which reveals the behaviour of the workers; the demand curve (D), which shows the behaviour of firms; and the equilibrium, which is when the quantity of labour demanded by the firms is equal to the quantity of labour that is supplied by the workers. The behaviours of each are often not straight forward. For example, from a microeconomic perspective, workers' behvariours may not necessarily act aggregately as an upward sloping supply curve. Though this is often assumed, it is contingent on a dominant substitution effect (over the income effect). 

Labour Economics is interested in the effect that policy issues, such as welfare, worker compensation, etc., have on the labour market. Furthermore, it is also concerned with unemployment, participation rates, and underemployment. To study how policy issues are implemented by the government to control the labour market, regression analysis is used to determine how these changes impact individual outcomes, such as a firm’s individual outcome.

Effects of Job Automation (Computerization) on the Job Market

This solution briefly explains the concept of job automation, including a review of a leading 2013 study by Frey & Osborne, who first quantified the probability of job automation in the US economy. Further, this solution reviews the jobs that are in the highest and low risk categories for job automation, with a glance at the US

Firm Selling Products in Highly Competitive Market

Q1A firm's product sells for $3 per unit in a highly competitive market. The firm produces output using capital (which it rents at $80 per hour) and labor (which is paid a wage of $20 per hour under a contract for 20 hours of labor services). Complete the following table and use that information to answer the questions that fol

Supply and Demand, and Labor

1. The following table gives short-run and long-run total costs for various levels of output for a perfectly competitive firm: Output (Q)SRTC AVC TR 0 350 1 400 2 425 3 465 4 505 5 560 6 635 7 730 Note: AVC is Average Variable Cos, TR is Total Revenue, SRTC is Short Run Total Cost, SRTC = FC + V

4 Questions on Labour in Economics

1. You are the purchasing manager of a company and are responsible for ensuring that necessary inputs are available to keep your factory operating. For each of the three types of purchases identified below, recommend whether your company should use spot purchases, contract purchase, or internal production. Support your answer u

Monopolistic Competition and Differentiating Products and Services

Explore how firms in monopolistic competition differentiate their products or services to generate a market niche and gain more control over their pricing. To what extent can product differentiation create barriers to entry? How can product differentiation help firms to increase their short-run profits? Give an example of a firm

Computing the Break Even Level

Compute the breakeven level for the following YoYo firm. The firm has overhead of $200,000. The sales price for YoYo's yoyos is $5 each. The costs of labor are $1 per yoyo and direct materials and packaging costs $1.


The table below sets out some data for Country X in 2007. Item Amount (in billions of dollars) Consumption expenditure 289 Government expenditure 99 Interest and

Calculating the marginal cost in the given case

The amount of capital is 17. The TP function is Q=TP=4.44L+3.44L^2-0.294L^3 The capital cost is $151 per unit. The wage rate is $105 per unit. What is the marginal cost with 8 worker(s) (to two decimal places)?

First Year Accounting vs. First Year Economic Costs

Suppose you work at Jiffy Lube, where you earn $15,000 per year. Your rich Uncle Walter recently died and left you an inheritance, so you are thinking of starting your own business. The business you wish to pursue will convert existing hybrid Toyota Prius automobiles to plug-in hybrid vehicles. You predict that you can retrofit

Calculating the optimal hours of labor

Firm XYZ measures its MP of labor curve to be the following MP = 4000 - 2L where L is the number of hours of labor hired per day. XYZ produces gadgets that are sold for $20 each and is able to hire workers for $10 per hour. How many hours of labor should XYZ hire each day to maximize its profits?

Calculating the accounting and economic costs

Suppose a company incurs the following costs: Labor - $400, Equipment - $300, Material - $100. However, it owns the building so dosen't have to pay the $800 in rent. - What is the tolal accounting cost? - What is the total economic cost? - Explain why these are different in this way.

Calculate the various productivity measures.

Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding and 3 specialty cakes each month for $50, $150 and $100 each respectively. The cost of labor is $50 per hour including benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake and 60 minutes to produce a specialty cake. Alyssa's cu

Pricing Menu Items

Assume that you have a menu item that costs $3.43 in food cost and 18 minutes of direct labor to create. Price the menu item using at least two of the methods identified in the text. Include your math in a clear format so that others can see how you obtained that price. Explain how the two pricing methods you used differ. Then,

Marginal product of labor

At present Able Corporation has (in relative terms): Marginal Product of Labor = 30 Total Cost of Labor = 15 Marginal Product of Capital = 60 Total Cost of Capital = 20. 1. Is Able Corporation currently operating at its lowest possible cost? _____________ 2. Why, or why not? ______________________________________

Marginal Product of Labor

Emily draws cartoons that she sells to her classmates. Her average product of labor is five cartoons per hour if she works for one hour, four per hour, if she works for two hours, three per hour if she works for 3 hours, and two and a half per hour if she works for four hours. What is her marginal product of labor at one, two,

Enter and Exit of Firms

Please help with the following problem. ENTRY AND EXIT OF FIRMS: WHERE HAVE THEY OCCURRED? Go to the Census Bureau Web site at and select Economic Census, then Comparative Statistics, and then Manufacturing (More data). Identify three manufacturing industries that experienced large percentage increases in t

Newspaper cost and breakeven point

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $600,000 per month, and you have contractual labor obligations of $1.25 million per month that you can't get out of. You also have a marginal printing cost of $.25 per paper as well as a marginal delivery

How many workers should an apple orchard hire?

The following schedule shows the production schedule at the delicious Apple Orchard for 2006: WORKERS TOTAL BUSHELS OF APPLES PER DAY 0 0 1 40 2 70 3 90 4 100 5 105 6 102 If apples sell for $2 per bushel and workers can be hired in a competitive labor market for $30 dollars per day, how many workers should be

This solution debates to sell or process further decisions.

13-31 Scottie Sweater Company The Scottie Sweater Company produces sweaters under the â??Scottieâ? label. The company buys raw wool and processes it into wool yarn from which the sweaters are woven. One spindle of wool yarn is required to produce once sweater. The costs and revenues associated with the sweaters are given

Marginal analysis

You have been hired to manage a small manufacturing facility which has cost and production data given in the table below. Total Total Workers Labor Cost Output Revenue 1 $300 50 $350 2 600

supply of labor and increasing retirement age

The age at which women could obtain the age pension will gradually raise from 60 - 65. Over the last 5 years the participation rate of women between 60-64 increased and at the same time the age at which women could get the age pension was also raised from 61 to 62. By describing (in words and a diagram) and then adopting the

Law of diminishing marginal product

You are the production manager at a steel plant, where all of the capital investment has been made for the next year. The only input you control is the amount of labor, which is priced at $15 per unit. Fill in the blanks in the following table and answer the question below. Labor Total Marginal Average

Incremental Cost

Incremental Costs. Fluff Rite, Inc., manufactures stove top popcorn poppers that it sells to distributors, who then customize and distribute the products to retailers as house-brand poppers. The yearly volume of output is 100,000 units. The selling price and cost per unit are shown below: Selling price $20 Costs: Direc