DEMAND CURVE OF LABOUR (Microeconomics) for MSC ECONOMICS, JNU, IGIDR, CUCET, CU, IIFT, BHU

When producing goods and services, businesses require labor and capital as inputs to their production process. The demand for labor is an economics principle derived from the demand for a firm's output. That is, if demand for a firm's output increases, the firm will demand more labor, thus hiring more staff. And if demand for the firm's output of goods and services decreases, in turn, it will require less labor and its demand for labor will fall, and less staff will be retained.
According to the law of diminishing marginal returns, by definition, in most sectors, eventually the MPL will decrease. Based on this law: as units of one input are added (with all other inputs held constant) a point will be reached where the resulting additions to output will begin to decrease; that is marginal product will decline.

Another consideration is the marginal revenue product of labor (MRPL), which is the change in revenue that results from employing an additional unit of labor, holding all other inputs constant. This can be used to determine the optimal number of workers to employ at a given market wage rate. According to economic theory, profit-maximizing firms will hire workers up to the point where the marginal revenue product is equal to the wage rate because it is not efficient for a firm to pay its workers more than it will earn in revenues from their labor.
Changes in the marginal productivity of labor, such as technological advances brought on by computers
Changes in the prices of other factors of production, including shifts in the relative prices of labor and capital stock
Changes in the price of an entity’s output, usually from an entity charging more for their product or service
The demand for labour will be negatively sloped in all types of production for two reasons. First, a rise in the wage rate increases the costs of firms producing the commodity, forcing them to raise their selling prices. As the price of the product rises consumers will buy less of it and less output will be produced and sold. This means that less labour will be used. Second, since a rise in wages makes labour more expensive relative to capital, firms will substitute capital for labour. This means that less labour will be used to produce whatever output the firms in the industry sell.

If the wage is free to adjust in response to market forces it will move to We, where the demand for labour equals the supply. When the wage is above We, more labour will be presented for employment than firms in the industry can profitably hire. It will pay workers to lower their wages to obtain employment in the industry. And when the wage is below We, firms will find it profitable to hire more labour than is presenting itself for employment. They will offer a higher wage to obtain additional workers.
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