# lec14 - FACTOR MARKETS wage Demand and supply labor: SL...

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

1 3 FACTOR MARKETS “Factor markets” = markets for inputs Main concept: The market for outputs affects the market for inputs, and vice versa. 4 Demand and supply labor: wage Market L L* W* S L D L 5 How is demand for labor determined? Demand for output creates Demand for labor 6 Marginal Product of Labor MP L = extra output that can be produced with one extra unit of labor LM P L 0-1 10 units 1-2 9 2-3 7 3-4 5 Law of Diminishing MP. 7 How much labor will firm demand? Price of output: P = \$2 Wage rate: w = \$14/hour P L PxMP L w 0 - 1 1 02 01 4 1-2 9 18 14 2-3 7 14 14 3-4 5 10 14 8 Firm’s demand curve for labor: PxMP L wage l Firm l 1 MP L x P = d l w 1

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

View Full Document
2 10 Market demand for labor is sum of firm’s demands. wage wage Firm Market L l MP L x P D L = Σ MP L x P 14 Equilibrium in Market for Labor: wage wage Firm Market L l MP L x P S L D L = Σ MP L x P Equilibrium wage depends on price of output. L* l* w* w* 16 Recall: marginal cost curve is supply curve for firm. \$\$ Firm Market Q q S = Σ MC D Q* q* p* p* OUTPUT MC 17 Firm Market Q q S = Σ MC(w) D Q* q* p* p* OUTPUT MC(w) Price of output depends on wage.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/03/2008 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.

### Page1 / 4

lec14 - FACTOR MARKETS wage Demand and supply labor: SL...

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

View Full Document
Ask a homework question - tutors are online