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Econ 101 Winter 2010 Lecture 22

# Econ 101 Winter 2010 Lecture 22 - Economics 101...

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Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 22

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Lecture 1 22 Chapters 10 & 16 of text Available on CTools Last quiz in discussion this week Reading Problem Set 12
Lecture 1 A One Input Model Production uses labor (L) as the only input n Price of labor = W (wage) Production function displays diminishing Marginal Product of Labor (MPL) Profit maximization: Choose L* so that

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Lecture 1 Demand for Labor MPL L \$/unit of L output/ unit of L P*MPL = MRPL Labor Demand L* W W L*
Lecture 1 Interpreting the profit maximizing condition P * MPL = W Revenue generated by the marginal worker = dollar cost of the marginal worker MPL = W/P Output produced by the marginal worker = output cost of the marginal worker n Refer to W/P as the real wage P = W/MPL Dollar value of the marginal unit of output = dollar cost of the marginal unit of output n W/MPL(L*) is the marginal cost

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Lecture 1 Demand for Labor MPL L output/ unit of L Labor Demand L* Real wage = W/P
Lecture 1 Supply Decisions W/MPL Q \$ Marginal Cost Q* P

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Lecture 1 A Two Input Model Production uses labor (L) and capital (K) n Price of labor = W (wage) n Price of capital = R (rental rate) Production function: Q = f(K, L) n Implied tradeoff between K and L n Different combinations of K and L generate the same level of output
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Econ 101 Winter 2010 Lecture 22 - Economics 101...

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