lecture14kg - Introduction to Microeconomics Lecture 14...

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Introduction to Microeconomics Lecture 14 Factors of Production and Factor Markets Kathryn Graddy
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Outline Factors of Production and Marginal Productivity Factor Demand and the VMPL Marginal Productivity and Wage Inequality Market Structure in Factor Markets The Minimum Wage
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Factors of Production Firms use inputs (“factors of production”): labour, materials, energy, services, capital equipment What determines firms’ demands for factors of production? What kind of markets are those factors bought in? How does the nature of those markets determine ultimate factor usage?
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Marginal Productivity Factors of production are not demanded for themselves, but for their contribution towards output : factor demand is a “Derived Demand” If we take on one more unit of a factor, say labour, what does this do to output? Answer is: the Marginal Product of Labour , MPL = ∂Q/∂L
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Different Marginal Products Marginal Physical Product of Labour: MPPL = ∂Q/∂L Value of the Marginal Product of Labour: VMPL = p x ∂Q/∂L Marginal Revenue Product of Labour: If output market is perfectly competitive : MRPL = VMPL = p x ∂Q/∂L If output market is monopolistic : MRPL = MR x ∂Q/∂L
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Factor Demand Profit-maximising firms will keep adding units of a factor of production so long as each
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This note was uploaded on 04/12/2010 for the course ECON DEAM taught by Professor Vines during the Spring '10 term at Oxford University.

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lecture14kg - Introduction to Microeconomics Lecture 14...

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