{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

EC 201 11-3-08

EC 201 11-3-08 - o 2 Additional output is sold →...

This preview shows pages 1–2. Sign up to view the full content.

EC 201 11-3-08 Now, input markets or “factor markets”- factors of production o 1. Labor** o 2. Capital – railroad cars, computers, wrenches, warehouses }=> dividends, interest, rents, royalties, capital gains →↑in price of asset o 3. Materials o 4. Energy o 5. Land Demand for input or demand for factors o Businesses are buyers/demanders o How many workers to hire? o How many machines to rent? If MB >MC, yes, hire one more. Stop when MB=MC Consumer: MU=P Perf. Comp firm: MR=MC Identify MB+MC of hiring one additional unit of factor of production MB to firm from hiring one additional worker: o 1. Additional worker→ additional output “marginal product”- (Marginal physical product) Diminishing Marginal Product

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.

Unformatted text preview: o 2. Additional output is sold → additional money “marginal revenue” • What is MC to firm from hiring one additional worker? o For now, competition assumption: o Firm takes market input price (i.e. wage rate) as given • Combine MB (MRP) + MC (input price- wage rate) Firm’s optimal hiring decision: input at which MRP=input price (labor: MRP=wage rate) • See: consumer MU=P firm MR=MC • What if wage changes? Here, comp. firm in input market: labor D curve is MRP curve o Downward-sloping factor D curve • Market factor D curve is horiz. Sum of indiv. Firm factor D curves • Supply of Labor: worker trades off income + leisure...
View Full Document

{[ snackBarMessage ]}

Page1 / 2

EC 201 11-3-08 - o 2 Additional output is sold →...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online