Now we can put the supply and demand for labor together and discuss an equilibrium. This is shown in Figure 4, below. Recall, the price of labor is the wage, shown by w, and the quantity demanded is the number of labor-hours employed, shown by N. The demand for labor is the pMP, the price of output times the marginal productivity of labor in units of output. As usual, the equilibrium price (wage) and the equilibrium quantity demanded and supplied (employment) are at the point where the supply and demand curve intersect.
"The proof of the pudding is in the eating," so let's look at an application.
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