Answer to Question #306788 in Accounting for ses

Question

Which economic decision-makers determine the demand for labor? What is their goal and what decision criteria do they use in trying to reach that goal?

Answer 1

Demand for labor is determined by firms. The goal of the firm is to maximize the profit. To maximize profit, firms will increase the labor size till the marginal revenue from the last labor exceeds the marginal cost of employing the labor. Supply of labor Labors belong to household sector. Hence, the supply of labor is determined by the households. The goal of the household is to maximize the utility. To increase the utility, households would increase the labor supply till the net utility increases.