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

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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
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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) Firms 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...
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EC 201 11-3-08 - o 2. Additional output is sold additional...

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