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Main content
Current time:0:00Total duration:6:18
AP.MICRO:
PRD‑4 (EU)
,
PRD‑4.B (LO)

Video transcript

in the last few videos we constructed a marginal product revenue curve for our little competitive car wash and we essentially figured out how this is really just the demand curve for labor from this firm and I talked about in the very first video that if you know the demand curve for in a certain market and this is the market for labor of a certain kind maybe the type of labor that would work at a car wash then if you knew it from one firm and all the other firms in the market for that type of labor you could add their demand curves to get the entire market demand for that type of labor for that good or service and what I want to do in this video is make sure you understand what it means to add demand curves it's on one level straightforward but on some one another level little not intuitive because of the ways that the axes are defined in economics that the price axis is the vertical axis so let's draw the demand curve for two firms and I'll do simplified versions I won't use this one right over here I'll just do two simplified demand curves and this doesn't apply just to labor markets this applies to any demand curve so if I want to add to demand curves so this is one one entities demand so let's say this is one firms demand so that's price and this is quantity this is quantity and let's say at a price of 10 they demand nothing if that's the hourly wages and if the price were zero they would they would essentially get up to they would demand ten people and so you have a situation you have a demand curve that would look something a band curve that would look something like that dot the demand curve that would look like that I'll do one other point on the demand curve at a price of five a quantity or $5 per hour this firm would demand if we're thinking of it in terms of labor at a price of $5 per hour of labor this firm would demand five people per hour and obviously what I'm going to do is general to any demand car but we'll just keep it in the labor mindset so this is firm one this is a firm's demand firm one if we're talking about this demand for oranges and this wouldn't be a firm this would be a consumer or or maybe a wholesaler or something like that so this is firm ones demand for labor and let's say firm 2's demand looks something like this and I'll try to align them so firm 2's demand looks something like this and the axes are going to have the exact same labels this is quantity this is price right over here this is 5 this is 10 and then this is 15 and let's say that this is this is 5 and let's say this is 6 right over here and their demand curve looks like this it looks so like that let me make it a little bit neater it looks that was less neat it looks something like that and I could put some extra points here at a price of 10 this firm will demand 2 units if we're the labor $10 per hour they'll get 2 people per hour at a price of 5 they will demand for they will demand 4 units so these are all we've looked at a couple of points on this demand curve and now we are ready to add them together so this is firm to firm 2's demand for labor so let's add these two curves and what I said is unintuitive is that we're actually going to look at for a given price how much total quantity of labor is now demanded so we're going to essentially add it horizontally you're going to see what I'm talking about in a second so when I add them together I add them together I'm going to have the same axes so this is let's say this is 5 this is 10 actually let me get a little bit further on this axis on this second axis so the second axis let me get as straight as possible so let's say that this is 5 10 15 5 10 15 and this is 5 10 15 I'm doing my best to align it horizontally that this 15 is this 15 that this 10 is with this 10 with is with that 10 and that 5 is with that 5 and with that 5 so at a price of 15 in the market what is the total quantity demanded well it's still going to be 0 because even this firm is still demanding 0 but then if we go if we go to a price of and this firm the firm one is demanding zero but firm two over here is demanding two so we're going to go ten it's going to be right over there this is right about to that distance is right about two and then if we go to five at a price of five firm one is going to demand five firm two is going to demand four units of labour so at a price of five you're going to have five plus four so the price of five you're going to have five plus four or nine units of labour nine units of labour and then at a price of zero if Labour is free this firm would demand ten units this firm would demand six units you add them together you get sixteen units so you'd get sixteen units so the combined the combined the demand for labor curve will look something like I'll do it or actually do it in blue the combined demand for labor curve will look like this between 15 and $10 only firm one is interested in getting any labor so this part right over here will look just like that but then after that point you can essentially add firm one to the mix and then firm one now maybe I'll do that part in a different color it'll look something like it'll look something like like that we've essentially added we've horizontally added this line to this line you could imagine taking this line and at any given point so at five right over here you're taking its value in quantity and adding to this quantity here and the reason why I said this is a little bit non-intuitive is this would have been easier at least for me to add with kind of the background or the traditional algebraic conventions we're used to we're used to adding kind of vertically so if we were to flip price and quantity then we could kind of stack these on top of each other and add them vertically and that's why it's a little non-intuitive but hopefully this makes sense we're just looking at each of their demand curves at any given price we're seeing okay what is the demand from firm two what is the demand from firm one and we're adding them together and then we get this we get this combined market demand curve firm 1 plus firm 2