AP_Krugman_Textbook

marginal product of each worker is less than that of the preceding worker because
the marginal product of each worker is less than that of the preceding worker.
We have just seen that to maximize profit, George and Martha hire workers until the
wage rate is equal to the value of the marginal product of the last worker employed.
Let’s use the example to see how this principle really works.

module 69 Introduction and Factor Demand 685

Section 13 Factor Markets

Value of the Marginal Product of Labor for George and Martha’s Farm

table69.2

$380

340

300

260

220

180

140

100

19

17

15

13

11

9

7

5

Marginal product

of labor

MPL

(bushels per worker)

Value of the marginal

product of labor

VMPLP×MPL

Quantity of

labor

L

(workers)

0 1 2 3 4 5 6 7 8

figure 69.3

The Value of the

Marginal Product Curve

This curve shows how the value of the

marginal product of labor depends on

the number of workers employed. It

slopes downward because of diminish-

ing returns to labor in production. To

maximize profit, George and Martha

choose the level of employment at

which the value of the marginal prod-

uct of labor is equal to the market

wage rate. For example, at a wage rate

of $200 the profit-maximizing level of

employment is 5 workers, shown by

point A.The value of the marginal prod-

uct curve of a factor is the producer’s

individual demand curve for that factor.

Value of the

marginal product

of labor curve,

VMPL

A

(^012347658)
$400
300
200
100
Quantity of labor
(workers)
Wage rate,
VMPL
Profit-maximizing
number of workers
Market
wage rate
Optimal
point