FACTORMARKET

FACTORMARKET - -1- FACTOR MARKETS: LABOR MARKET In the...

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FACTOR MARKETS: LABOR MARKET In the chapter on perfect competition, monopoly, monopolistic competition, and oligopoly, the firm was a seller of products. In this chapter, the firm is a buyer of factors. A firm may be a buyer in one market and a seller in another. Product Price Taker: A firm that faces a horizontal demand curve for the product it sells. It can sell as many units of its good as it wants without affecting price. The perfectly competitive firm is a product price taker, e.g. the department store at the local mall is a price taker in hiring sales clerks. This means the store can hire sales clerks, one right after another, all for the same wage rate, and not drive up the wage rate. Product Price Searcher: A firm that faces a downward sloping demand curve for the product it sells. It sells fewer units at higher prices than lower prices. The monopoly, monopolistic competitive firms, and oligopolistic firms are product price searcher. If it buys an additional factor unit, it drives up factor price. The higher factor prices (wage rate) must be paid to all those hired previously, too. Factor Price Taker: A firm that can buy all of a factor it wants at the equilibrium price. It faces a horizontal supply curve of factors. Factor Price Searcher: A firm that drives up factor price if it buys an additional factor unit. It faces an upward sloping supply curve of factors. Four Categories 1) A product price taker and a factor price taker. 2) A product price searcher and a factor price taker. 3) A product price taker and a factor price searcher. 4) A product price searcher and a factor price searcher The Firm as Product Price Taker and Factor Price Taker Why do firms purchase factors? To produce products to sell. The demand for factors is a derived demand. Derived Demand : Demand that is the result of some other demand. e.g. factor demand is the result of the demand for the products that the factors go to produce. If the demand for the product rises, the demand for the factors used to produce the product rises and vise versa. When the demand for a seller's product rises, the seller needs to have some idea of how much more of a factor it should buy. The concept of marginal revenue product (MRP) and marginal resource cost (MRC) are relevant here. Marginal Revenue Product
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This note was uploaded on 01/28/2011 for the course ECON 1 taught by Professor Sm during the Spring '10 term at Laney College.

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FACTORMARKET - -1- FACTOR MARKETS: LABOR MARKET In the...

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