factors of production
the inputs used to produce goods and services.
The demand for a factor of production is a ______ demand, as a result of
derived
decision to supply a good in another market. rather than being final goods ready to be enjoyed by consumers
labor markets are different from most other markets because labor demand is a _______ demand.
derived
In study of labor demand by the firm, we set 2 assumptions:
1) Firm is competitive both in selling apple and buying labor - price taker in both roles.
2) Firm is profit maximizing. - care only profit as deicision making criteria.
production function is
the relationship between the quantity of the inputs used in production and the quantity of output from production.
marginal product of labor is
the increase in the amount of output from an additional unit of labor.
diminishing marginal product is
the property whereby the marginal product of
an input declines as the quantity of the input increases.
Production function curve
To find the worker's contribution to revenue, we must convert the marginal product of labor (which is measured in bushels of apples) into
the value of the marginal product (which is measured in dollars).
value of the marginal product
is the marginal product of that input multiplied by the market price of the output.
marginal revenue product is
the extra revenue the firm gets from hiring an additional unit of a factor of production.
a competitive, profit-maximizing firm hires workers up to the point where the value
of the marginal product of labor equals
the wage.
the value-of-marginal-product curve is
the labor-demand curve for a competitive,
profit-maximizing firm.
Labor-demand curve
Labor demand curve shift due to
1) Output price change - apple price increase will hire more workers
2) Technological change - machine replace workers,
3) Supply of other factors (compliment input factors - supply of ladder for apple pickers)
the price of the firm's output is equal to
the marginal cost of producing a unit of output.
when a competitive firm hires labor up to the point at which
the value of the marginal product equals the wage, it also produces up to the point at which the price equals marginal cost.
a profit-maximizing firm chooses the quantity of labor so that the value of the marginal product equals the wage.
P � MPL = W
P = W/MPL
P = MC
Luddite refers to
anyone who opposes technological progress
The labor-supply curve reflects
how workers' decisions about the labor-leisure
trade-off respond to a change in that opportunity cost.
An upward-sloping laborsupply curve means that
an increase in the wage induces workers to increase the quantity of labor they supply.
labor-supply curve need not be upward sloping because
at the higher wage, one might choose to work fewer hours.
Causes that shift Labor-Supply curve
1) Changes in Taste - women work more than in the past.
2) Changes in Alternative Opportunities - pear picker's wage vs. apple picker's.
3) Immigration
Any event that changes the supply or demand for labor must change
the equilibrium wage and the value of the marginal product by the same amount because these must always be equal.
Shift in Labor Supply
Shift in Labor Demand
highly productive workers are highly paid, and less productive workers are less highly paid because
wages equal productivity (measured by the value of the marginal product of labor.)
monopsony
a market with one buyer.
It hires fewer workers than would a competitive firm; by reducing the number of jobs available, the monopsony firm moves along the labor supply curve, reducing the wage it pays and raising its profits.
capital to refer to
the stock of equipment and structures used for production.
the accumulation of goods produced in the past that are being used in the present to produce new goods and services. eg. ladder, truck, building
purchase price of land or capital is
the price a person pays to own that factor of production indefinitely.
rental price is
the price a person pays to use that factor for a limited period of time.
wage is the rental price of labor, same concept applies to the rental prices of land and capital.
Like wage, the firm increases the quantity hired of land and capitaluntil the value of the factor's marginal product equals the factor's price.
Thus, the demand curve for each factor reflects the marginal productivity of that factor.
the price paid to any factor of production�labor, land, or capital�equals
the value of the marginal product of that factor.
Capital income is the rent that
households receive for the use of their capital.
Different forms of capital income are
interest income to households lent money to firms through banks.
Dividend.
A stockholder is
a person who has bought a share in the ownership of the firm and, therefore, is entitled to share in the firm's profits.
Dividends are
payments by a firm to the firm's stockholders.
A firm retain some earnings within the firm and use these earnings
to buy additional capital.
Capital is paid according to the ________________, regardless of whether this income is transmitted to households in the form of interest or dividends or whether it is kept within firms
as retained earnings.
value of its marginal product
product of any factor depends on
the quantity available of that factor.
Because of diminishing marginal product, a factor in abundant supply has a low marginal product and thus a ____ price, and a factor in scarce supply has a high marginal product and a ____ price.
low, high
The supply of a factor falls, its equilibrium factor price _____
rises.