Changes in the determinants of labor supply (such as immigration, education, working conditions, age distribution, availability of alternative options, preferences for leisure, and cultural expectations) cause the labor supply curve to shift.

In a perfectly competitive labor market, the wage is set by the market and each firm hires the quantity of workers, where the marginal factor (resource) cost (wage) equals the marginal revenue product of labor. A typical firm may be a perfect competitor in the labor market even if it is an imperfect competitor in its output markets.

A typical firm hires labor in a perfectly competitive labor market as long as the marginal revenue product of labor is greater than the market wage.

To minimize costs or maximize profits, firms allocate inputs such that the last dollar spent on each input yields the same amount of marginal product.

Marginal revenue product of a factor of production is the change in total revenue divided by the change in that factor of production, which is also equal to the marginal physical product of that factor multiplied by the marginal revenue (MRP = MP × MR). Firms in a perfectly competitive output market will have marginal revenue product of labor that is equal to the value of the marginal product of labor (VMPL = MPL × P) because marginal revenue for each unit of output is equal to price.

In a monopsonistic labor market, a typical firm hires additional labor as long as the marginal revenue product is greater than the marginal factor (resource) cost (the wage of a new unit of labor plus the wage increase given to all existing labor).

When a typical firm hires additional workers in a monopsonistic labor market, the marginal factor (resource) cost is greater than the supply price of labor.

Explain (using graphs where appropriate) the profit-maximizing behavior of firms buying labor (with other inputs fixed) in perfectly competitive markets.

Calculate (using data from a graph or table where appropriate) measures representing the profit-maximizing behavior of firms buying labor (with other inputs fixed) in perfectly competitive markets.

Define (using graphs as appropriate) the characteristics of monopsonistic markets.

Explain (using graphs where appropriate) the profit-maximizing behavior of firms buying labor (with other inputs fixed) in monopsonistic markets.

Calculate (using data from a graph or table where appropriate) measures representing the profit-maximizing behavior of firms buying labor (with other inputs fixed) in monopsonistic markets.