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Ch. 14 download - Chapter 14 Markets for Factor Inputs...

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Chapter 14 Markets for Factor Inputs
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Chapter 14 Slide 2 Topics to be Discussed Competitive Factor Markets Equilibrium in a Competitive Factor Market Factor Markets with Monopsony Power Factor Markets with Monopoly Power
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Chapter 14 Slide 3 Competitive Factor Markets Characteristics 1) Large number of sellers of the factor of production 2) Large number of buyers of the factor of production 3) The buyers and sellers of the factor of production are price takers
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Chapter 14 Slide 4 Competitive Factor Markets Demand for a Factor Input When Only One Input Is Variable Demand for factor inputs is a derived demand… derived from factor cost and output demand
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Chapter 14 Slide 5 Competitive Factor Markets Assume Two inputs: Capital ( K ) and Labor ( L) Cost of K is r and the cost of labor is w K is fixed and L is variable Demand for a Factor Input When Only One Input Is Variable
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Chapter 14 Slide 6 Competitive Factor Markets Problem How much labor to hire Demand for a Factor Input When Only One Input Is Variable
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Chapter 14 Slide 7 Competitive Factor Markets Measuring the Value of a Worker’s Output Marginal Revenue Product of Labor (MRP L ) MRP L = ( MP L )( MR ) Demand for a Factor Input When Only One Input Is Variable
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Chapter 14 Slide 8 Competitive Factor Markets Assume perfect competition in the product market Then MR = P Demand for a Factor Input When Only One Input Is Variable
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Chapter 14 Slide 9 Competitive Factor Markets Question What will happen to the value of MRP L when more workers are hired? Demand for a Factor Input When Only One Input Is Variable
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Chapter 14 Slide 10 Marginal Revenue Product Hours of Work Wages ($ per hour) MRP L = MP L x P Competitive Output Market ( P = MR) MRP L = MP L x MR Monopolistic Output Market ( P < MR )
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Chapter 14 Slide 11 Competitive Factor Markets Choosing the profit-maximizing amount of labor If MRP L > w (the marginal cost of hiring a worker): hire the worker If MRP L < w: hire less labor If MRP L = w : profit maximizing amount of labor Demand for a Factor Input When Only One Input Is Variable
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Chapter 14 Slide 12 w* S L In a competitive labor market, a firm faces a perfectly elastic supply of labor and can hire as many workers as it wants at w*. Hiring by a Firm in the Labor Market (with Capital Fixed) Quantity of Labor Price of Labor Why not hire fewer or more workers than L*. MRP L = D L L* The profit maximizing firm will hire L* units of labor at the point where the marginal revenue product of labor is equal to the wage rate.
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Slide 13 Competitive Factor Markets If the market supply of labor increased relative to demand (baby boomers or female entry), a surplus of labor would exist and the wage rate would fall. Question
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This note was uploaded on 07/29/2008 for the course ECON 100B taught by Professor Bacolod during the Spring '05 term at UC Irvine.

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Ch. 14 download - Chapter 14 Markets for Factor Inputs...

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