Setup: Two Competitive Markets
The Hiring Decision
Complete Worked Example
Firm's Profit from Labor
Graphical Analysis
The area between MRP and W (up to the hiring point) is the firm's surplus from hiring
What Happens When the Wage Changes?
Market Equilibrium in the Labor Market
Market wage and employment determined by market-level supply and demand for labor
Wage Differentials
Transfer Earnings and Economic Rent
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