141_Chapter_10_Lecture_Outline

141_Chapter_10_Lecture_Outline - 10 I nput Demand The Labor...

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10 Input Demand: The Labor and Land Markets OUTLINE OF TEXT MATERIAL I. Introduction How do firms decide the quantities of various inputs to hire? This chapter looks at the  first two major input markets, those for labor and land. Perfect competition is assumed  throughout the chapter. »»» TEACHING TIP: Although this chapter is about input markets in general, its main focus is labor  markets. Mention to your students that the same principles apply in other inputs. º II. Input Markets: Basic Concepts A. Demand for Inputs: A Derived Demand 1. The demand for inputs is a  derived demand ; it is derived from the demand  for the output. 2. The  productivity of an input  is the quantity of output produced per unit of  the input used. B. Inputs: Complementary and Substitutable 1. Inputs may be  complementary  or  substitutable  depending on whether they  can be used together or in place of each other. 2. Changes in the price of one input will usually alter the demand for a  number of other inputs.   (Naturally there will be a change in quantity  demanded of the input whose priced has changed.) C. Diminishing Returns: A fixed scale of plant means that the marginal product of  the variable  inputs eventually  declines.  The   marginal  product   of labor   is the  additional output produced if a firm hires one additional unit of labor. 101
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102   Principles of Microeconomics D. Marginal Revenue Product : The additional revenue a firm earns by employing one  additional unit of that input,  ceteris paribus .  As long as the firm is selling into a 
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