How Many People to Hire Given the MPR curve발음듣기
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How Many People to Hire Given the MPR curve
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Voiceover: What I want to do in this video is dig a little bit deeper in this marginal product revenue curve, and really make sure we understand what it's telling us, that it really is the marginal benefit curve for this firm.발음듣기
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Also, how we can use this to think about what's a rational number of people for this firm to hire?발음듣기
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Just as a reminder, this horizontal axis here, this is a quantity of labor per hour, so this is people per hour that are working at the firm.발음듣기
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People per hour. And the vertical axis here, the marginal product revenue, that you could view as the marginal dollars, or the incremental dollars that you're getting per person, per hour.발음듣기
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And to just verify that it's telling us the same thing visually that this table told us right up here, we can think about what is the marginal, how much incremental revenue do we get from hiring that 1st person.발음듣기
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What we could do is we could multiply the quantity of people, which is 1, times the average, times the average increment, the average marginal product revenue that we get from 1 person,발음듣기
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The average is 25. The reason why I said it that way, is you could imagine a reality where getting a tenth of a person, you get a value higher than 25.발음듣기
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But on average, as we go from 0 to 1 person, we are getting $25 of value, or $25 of marginal revenue per person per hour.발음듣기
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So if you wanted to figure out what's the total marginal revenue that we got from this person right over here, the total incremental revenue that this is allowing us to get, well,발음듣기
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it's the one person times the average marginal product revenue, which is 25, so that would give us the area of this rectangle right over there, which would be $25.발음듣기
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but I think you can look at it geometrically, that also happens to be, given that this is a line, that our curve, our marginal product revenue is a line right over here, that the area under this rectangle is going to be the same thing as the area under the orange curve.발음듣기
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The orange curve, between 0 and ½ is above this rectangle and between ½ and one, it is below the rectangle.발음듣기
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That's essentially how much benefit the firm is getting from hiring, from going from 0 to 1 person.발음듣기
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Well, going from 1 to 2, our change in quantity of people per hour is 1, and then our average marginal product revenue going from 1 to 2 people is $20.발음듣기
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So, it is $20, and so the area is 1 times 20, and that's also going to be the same as the area under the curve.발음듣기
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Well, the average height here, we'd essentially just say, "What is the area between 2 and 3?"발음듣기
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And we can figure out that area by saying, "Well the average height, The average height is 15.발음듣기
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Given this, this is just telling us the revenue we're getting, but it's really not telling us, it's really not telling us what is the optimal, or the rational number of employees to hire?발음듣기
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To do that, we have to think about the cost per employee, the marginal cost that we are actually incurring.발음듣기
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When I mentioned it before, I talked about it being competitive in terms of the car wash market, so it was a competitive supplier,발음듣기
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but let's assume that it is also a competitive buyer in the labor market, so these are two different, these are two different markets, and I want to clarify.발음듣기
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In the car wash market, in the car wash market, we are competitive, we are a competitive supplier, or I guess we could say are a seller of car washes.발음듣기
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In the labor market, in the labor market, our firm is a competitive, is a competitive buyer.발음듣기
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there's the competitive suppliers, where there's many undifferentiated people who are supplying some type of good or service and the opposite of that was a monopoly, so a non-competitive, non-competitive.발음듣기
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If we had a non-competitive buyer, so if you had many sellers but only one big buyer that could have a lot of market influence, and we haven't done a deep analysis of that yet, that word, just so you know it,발음듣기
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and you're not taken by surprise if someone says it, it means monopsony, or the word is monopsony.발음듣기
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Monopsony. Not relevant to this video. We are the opposite of a monopsony in the labor market.발음듣기
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There are many, many, many, many, many buyers here, so we essentially just have to take the market wages, and we are also the opposite of a monopoly in the car wash market.발음듣기
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The whole reason why I'm saying that we are competitive in the labor market is I'm assuming that we're just going to have to take the market wages,발음듣기
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so the market wage for the type of labor we're hiring, so the market wage, and we're just going to have to take that.발음듣기
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If we hire 2 people, the area would be between 0 and 2, and under the curve, which would be 20,발음듣기
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or you could say the increment from going from 1 to 2 people is another $10, or going from 2 to 3 people, this area right over here is another $10.발음듣기
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Sure, you're going to get $25 in revenue, and you're going to have $10 in wages, so you're going to have $15 of benefit.발음듣기
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Your marginal cost from that 2nd person is $10, so you're going to make $10 on that 2nd person, so you should hire that 2nd person.발음듣기
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The 3rd person, you're going to make $15 off them, they're going to cost you $10 dollars, so you're going to, and this is all on a per-hour basis.발음듣기
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Now, if you could, it could make sense for you to hire another half person, maybe someone who shows up every other day, if this still holds, or maybe someone who shows up for half an hour,발음듣기
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or maybe someone who is doing this job and also operating the cash register, and they're kind of going in between.발음듣기
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A half-person is going to cost $5, and their marginal benefit is going to be the area under the curve between this point and this point, and so we get,발음듣기
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so the profit from that person, the net benefit we're going to get is going to be this area right over here.발음듣기
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It makes sense to keep hiring more and more people until the marginal benefit, or another way of saying, the marginal product revenue curve is equal to the marginal cost curve.발음듣기
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