Ec 10A Final Study Guide.docx - Ec 10A Final Study Guide December 12th 2017 Chapter 18 section notes \u25cf Factors of production \u2013 inputs used to

Ec 10A Final Study Guide.docx - Ec 10A Final Study Guide...

This preview shows page 1 - 3 out of 13 pages.

Ec 10A Final Study Guide December 12 th 2017 Chapter 18 + section notes: Factors of production – inputs used to produce goods and services o Demand for a factor is a derived demand o Labor is the most important factor Production function – relationship between Q inputs and Q outputs To make hiring decisions a firm must consider how workforce size effects output Marginal Product of Labor – increased output due to one additional unit of labor Diminishing marginal product – marginal product of an input decreases as Q of the input increases Profit from an additional worker = worker’s contribution to revenue – wage Value of the marginal product – marginal product of input * the price of the output o Marginal revenue product – extra revenue from hiring an additional unit of production Slope decreases because the marginal product of labor diminishes A competitive profit maximizing firm hires workers until the value of the marginal product of labor = wage The value of the marginal product curve is the labor demand curve for a competitive profit max firm Labor demand curve shifters: o Output price – changes the value of the m. p. o Technological changes – labor saving or labor augmenting o Supply of other factors – one factor’s availability can affect the mp of other factors The labor supply curve reflects worker’s decisions about the labor-leisure trade off o Income and substitution effects Labor supply curve shifters: o Changes in tastes o Changes in alternative opportunities – depends on opportunities in other labor markets o Immigration – movement of workers from region to region How wages are determined in competitive markets: o Wage adjusts to balance supply and demand of labor o Wage = value of the marginal product of labor
Image of page 1
o Any event that changes the supply or demand of labor must change the eq wage and the value of the marginal product of labor by the same amount because the two are equal Economies consist of many labor markets, not just one o General equilibrium effects – links between markets, make analyzing immigration hard An increase in the popularity of a good causes the price to increase – doesn’t change the mp of labor but changes the value of the mp of labor o Wage and the value of the marginal product move together Prosperity for firms is often linked to prosperity for workers Capital – the equipment and structures used to produce goods and services o Purchase price and rental price – the two are determined by different economic forces Land and capital are similar to the demand for labor o Land, labor, and capital each earn the value of their marginal contribution to the production process The purchase price of land or capital depends on both the current value of the mp and the value of the mp expected in the future Due to diminishing marginal product: o Abundant in supply = low marginal product o Rare in supply = high marginal product
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 13 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture