Chapter 18

Chapter 18 focuses on labor and land/capital, discussing many things. In a profit maximizing firm, the demand for labor depends on how the production function is for their firm, and the marginal product of labor to determine how many workers to hire. Firms will stop after it is no longer profitable to hire any more workers, trying to get the most revenue they can while still making a profit. Because of diminishing marginal product, firms will get to this point quicker than if it dealt with market conditions that would lead to them to produce less without it. And, due to this, the value of the marginal product curve ends up being the demand curve for the firm. While there's demand for labor, there is also supply for it, in terms of whether people are willing to give up leisure time to work, based on the amount of hours in the work week. Shifts in the graph would be based on external factors and effects, like an influx of new workers lowering wages, or a higher sale price for the product, increasing amount of workers. Land and capital are also used in determine how production is affected, as without certain equipment, firms would not be able to sell their product, depending on how big the land is and how much they can get off of it. This in combination with labor affect the main production line, in that there needs to be a balance between them to ensure they're at the profit maximizing point.