Lecture_22_Factor_Markets

Lecture_22_Factor_Markets - Lecture 22: Factor Markets c...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 22: Factor Markets c 2008 Je/rey A. Miron Outline 1. Introduction 2. Monopoly in the Output Market 3. Monopsony 4. Upstream and Downstream Monopolies 1 Introduction output and input markets. In some interesting cases, however, the assumption of a competitive market (for either the output or the input) is not realistic. This lecture considers what happens to factor demands when the assumption of competition does not hold in one or both markets. Some of the results here are not enormously important in practice, but they are nice reviews of earlier material and clean applications of the tools already developed. 2 Monopoly in the Output Market When choosing how much of a factor to hire, a &rm always makes the same cal- culation: it compares the marginal revenue from using a bit more of this factor to circumstances. We can therefore write the production function as 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
y = f ( x ) R ( y ) = p ( y ) y x a little bit. Then the e/ect on revenue is @R ( y ) @x = @R ( f ( x )) @x = @p ( f ( x )) f ( x ) @x = p ( f ( x )) f 0 ( x ) + f ( x ) p 0 ( f ( x )) f 0 ( x ) = [ p ( y ) + yp 0 ( y )] f 0 ( x ) = p ( y ) 1 + yp 0 ( y ) p ( y ) ± f 0 ( x ) = p ( y ) 1 + 1 ± MP x This can also be written as @R ( y ) @x = MR y MP x That is, the e/ect of an increase in x on revenue is the e/ect of the MP of x times the e/ect of increasing x MR . The overall expression is known as the marginal revenue product . The MRP is a generalization of the competitive case. Under competition, the @R ( y ) @x = pMP x MRP is just equal to the value marginal product , where that value is determined by the market price. 2
Background image of page 2
It is useful to think about the how the value MP compares to the revenue MP . The MRP must always be less than the value MP since an increase in x by a monopolist means an increase in the amount of y , and this causes a decrease in p .
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/16/2009 for the course ECONOMICS 1010A taught by Professor Jeffreya.miron during the Fall '09 term at Harvard.

Page1 / 10

Lecture_22_Factor_Markets - Lecture 22: Factor Markets c...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online