Consider the labors supply curve, L, shown to the right. If only one firm hires this factor then it faces the entire factor supply curve. Because this firm is the only employer of this factor it sets the wage for the entire market when it hires. This means that if it is making plans to hire more workers it must raise everyone's wages in order to move up the supply curve.

    This is like the monopoly seller who has to lower the price on all units sold. This need to raise all wages, not just those of the last worker hired, gives rise to the curve labelled MFC, or Marginal Factor Cost.

Copyright © 1995-2004, Inc. - All Rights Reserved