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Unformatted text preview: 1 Factor Markets Factors of Production and Distribution of Income Factor Demand and Marginal Productivity Supply of Labor Factor Market Equilibrium 200 400 600 800 1000 1200 1400 All workers High School Dropouts High School Diploma Some college courses Bachelor's degree Advanced Degree Average weekly earnings 4 th Quarter 2006 Labor Market W1 L1 D S QUANTITY OF LABOR WAGE RATE 2 Individual Labor Markets Quantity Wage Quantity Wage Quantity Wage Quantity Wage Plumbers Checkout Clerks in Pittsburgh Beauticians Chiropractors The Market for the Factors of Production The demand for a factor of production is a derived demand. A firms demand for a factor of production is derived from its decision to supply a good in another market. Firms Hiring Decision Firms need workers to produce goods and services How many units of labor? -- Marginal Decision Making Assume firms wish to maximize profit Profit = Total Revenue - Total Cost Add a unit of labor if additional revenue from additional unit of labor is greater than additional cost 3...
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