Factor Markets Chapter 18 Markets for Factors of

  • Slides: 10
Download presentation
Factor Markets Chapter 18

Factor Markets Chapter 18

Markets for Factors of Production • Factors of production are inputs used to produce

Markets for Factors of Production • Factors of production are inputs used to produce goods & services • Demand for a factor of production is a derived demand: – A firm’s demand for a factor of production is derived from demand for their own product

Labor markets, like other markets, are governed by the forces of supply & demand

Labor markets, like other markets, are governed by the forces of supply & demand (a) The (b) The Market for Apples Price of Apples Supply P Market for Apple Pickers Wage of Apple Pickers Supply W Demand 0 Q Quantity of Apples 0 L Quantity of Apple Pickers The demand for apple pickers is derived from the market demand for apples Copyright© 2003 Southwestern/Thomson Learning

Marginal Product of Labor • Production Function- illustrates the relationship between quantity of inputs

Marginal Product of Labor • Production Function- illustrates the relationship between quantity of inputs & quantity of output • Marginal Product of Labor (MPL)- the increase in output from an additional unit of labor – MPL = Q/ L or – MPL = (Q 2 – Q 1)/(L 2 – L 1)

As more workers are added Marginal Product Labor Declines MPL = Q/ L Diminishing

As more workers are added Marginal Product Labor Declines MPL = Q/ L Diminishing Marginal Product of Labor: Each additional worker contributes less to production than the prior one

The Production Function Diminishing Marginal Product makes the Production Function becomes “flatter” Quantity of

The Production Function Diminishing Marginal Product makes the Production Function becomes “flatter” Quantity of Apples Production function 300 280 240 180 100 0 1 2 3 4 5 Quantity of Apple Pickers

Marginal Revenue Product (MRP) • MRP = The marginal product of input multiplied by

Marginal Revenue Product (MRP) • MRP = The marginal product of input multiplied by the market price of output (measured in dollars) • MRPL = MPL P • MRP = Δ in Total Revenue / Δ in Resource Qty Labor 0 1 2 3 4 Total Product 0 25 45 60 70 Marginal Product ___ ___ Price MRP ___ ___ Price for a competitive firm equals MR & remains constant Assume Price = $0. 50

To Maximize Profit • A competitive firm hires workers up to the point where

To Maximize Profit • A competitive firm hires workers up to the point where MRP =Wage • The MRP curve is the labor demand curve for a competitive, profit-maximizing firm.

MRP & Maximizing Profit Value of the Marginal Product When a competitive firm hires

MRP & Maximizing Profit Value of the Marginal Product When a competitive firm hires labor up to the point where MRP = Wage, it also produces up to the point at which the P = MC Market wage Marginal Revenue Product (demand curve for labor) 0 Profit-maximizing quantity Quantity of Apple Pickers

Worksheet • Lesson 2, Activity 44 • New Terms: – Marginal Product of Labor

Worksheet • Lesson 2, Activity 44 • New Terms: – Marginal Product of Labor – Marginal Revenue Product

Unit IV Factor Markets Chapter 18 Factor MarketsUnit IV Factor Markets Chapter 18 Factor Markets
Factor Markets Chapter 18 Markets for Factors ofFactor Markets Chapter 18 Markets for Factors of
Factor Markets Frederick University 2011 Factor Markets ProductionFactor Markets Frederick University 2011 Factor Markets Production
THE FACTOR MARKETS AND PRODUCTIVITY Labor Markets FactorsTHE FACTOR MARKETS AND PRODUCTIVITY Labor Markets Factors
Social Factors Political Factors Religious Factors Intellectual FactorsSocial Factors Political Factors Religious Factors Intellectual Factors
Factors and Multiples Factors Prime Factors Common FactorsFactors and Multiples Factors Prime Factors Common Factors
Factors Prime Factors Factors and Prime Factors 1Factors Prime Factors Factors and Prime Factors 1
Markets Factor Markets Econ 102 Spring 2015 MarketsMarkets Factor Markets Econ 102 Spring 2015 Markets
Markets Factor Markets Econ 102 Spring 2016 MarketsMarkets Factor Markets Econ 102 Spring 2016 Markets