Alright. So now let's discuss the firm's demand curve for labor in a little more detail. Remember, we're talking about the demand for labor. In this case, it's the firm that is demanding the labor and the individuals who supply the labor, right? So when we see a firm's demand for labor, well, it depends on the demand for the good being produced. Okay, when the good being produced is something undesirable, like a booger-flavored pizza, no one is going to want to buy it. Therefore, you're not going to demand laborers to produce these booger-flavored pizzas that no one wants to buy, right? It's going to depend on the demand for the good. You could imagine, as there's more and more demand for a good, there's going to be more and more demand for the labor to produce the good. What this means is that the demand for labor, as well as other factors of production, is a derived demand. We use this term derived demand because it depends on the demand for the good being produced. If there was no demand for the good being produced, there'd be no demand for this labor. So demand for the labor is derived from the demand for the actual good being produced itself. Cool?
Let's go ahead and look here on the left graph: we've got a market for corn pickers, which looks very similar to what we've seen in product markets, right? We've got a downward-sloping demand and an upward-sloping supply, so nothing really too different here. First, notice the supply of corn pickers. These are individuals, people supplying their labor to the firms to pick the corn. So you have to keep in mind that it's almost like the roles have swapped here. Now, the individuals are the suppliers and the demanders are the firms. They demand the corn pickers to pick the corn for them. Another little difference that we're going to see here is that instead of having price on the y-axis, we're going to have wage. This is going to be the wage. In a product market, what's the price going to be? Well, this is going to be the price of the labor. Down here, we still have quantity, right? But this is the quantity of workers. How many workers are going to be hired? We've got a supply, and a demand; they cross just like we're used to. We've got an equilibrium right here in the middle. That's our equilibrium wage. That's going to be here at W star, right? And down here, we'll have our equilibrium quantity of workers, so that's the number of workers right there.
So now, let's take this information and take it over to the individual firm. The individual firm's demand for labor. We talked about the production function in previous videos and we saw that marginal revenue product was going to represent the firm's demand for labor. So the demand for corn pickers on the individual level comes from their marginal revenue product, right? Because the firms want to hire up to the point where the marginal revenue product equals the wage. So, as the wage goes up and down or if the wage changes, we're going to demand a different amount of labor based on that. At this current wage, just for the sake of example—oh, and that says demand for corn pickers equals MRP behind me. At this wage, let's say this was the equilibrium wage right here. Well, at that wage, this firm would demand say this many workers right here. Right? And that depends on their MRP. So if their MRP were to change, then their demand would change as well. So this is the equilibrium wage right here, set by the market, and that is where the firm is going to decide how many laborers to hire. That MRP curve is our demand curve for labor. Notice, we have that equilibrium; we've discussed this already, right? The equilibrium occurs in a labor market just like in a market for goods and services right there, where supply and demand cross. So, pretty simple overall. The main takeaway here is that the MRP, the marginal revenue product, some books call it the value of the marginal product of labor. Marginal revenue product is the firm's demand curve. That's the big takeaway here. Cool. Let's go ahead and do a couple of practice problems and then we'll move on to the next topic.
