The Labor Market
As we know that the firm will hire only optimal amount of labor that will maximize profit, this optimal quantity of labor depends upon the marginal product of labor(MPL). The marginal product of labor is defined as the extra unit of output that the firm produces from hiring one extra unit of labor.
MPL=F(K,L+1)-F(K,L)The above equation states that Marginal Product of labor is the difference of output produced from one extra unit of labor and the output produced from original quantity of labor.This production function has the function of diminishing marginal product which means that the marginal product of labor decreases as the amount of labor increases,and as the amount of labor increases the production function becomes flatter i.e. diminishing marginal product.
Read more about this topic: Factor Payments (economics)
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