I am stuck and confused by a section of what I read in my textbook, could you please help me understand the paragraph?

If you only vary one means of production and the market for it is competitive you should employ as many units of that means of production as you need to make its Marginal product equal its per-unit cost

1) The Wage (in terms of good we produce) is ω = w/px which is the nominal wage (W) divided by the price of the good and it must be the same as the marginal product of Labour for any given level of capital, which means that Money Value of the Marginal Product equals the nominal wage

My confusion stems from how can wage equal wage/price? That seems illogical to me!

Moreover, what does it mean by equals nominal wage? My understanding of Market for Factors was, you hire labour as long as the last labour output is higher than your costs, but I get confused by the term nominal.



1 Answer 1


Nominal means measured in present day money. E.g. someone in South Africa may have a monthly salary of 100,000 South African Rands. You have no idea how much this is unless you are told what real goods can be purchased from this. If a TV costs 10,000 Rands then the real wage of this person would be 10 TVs. Now you see the difference between nominal wages and real wages.

If you reread your question focusing on this part: "The Wage(in terms of good we produce)" I hope all your confusion will go away.


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