ECO Notes 10-26 - 10/26/09 NOTES: Chapter 10 Labor Markets...

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10/26/09 NOTES: Chapter 10 Labor Markets – When a firm uses only one variable factor or production, that factor’s marginal revenue product. o Factor substitution effect – the tendency of firms to substitute away from a factor whose price has risen and toward a factor whose price has fallen. o Output effect of a factor price increase (decrease) – When a firm decreases (increases) its output in response to a factor price increase (decrease), this decreases (increases) its demand for all factors o If labor markets are competitive, the wages in those markets are determined by the interaction of supply and demands. As we have seen, firms will hire workers only as long as the value if their product seems to exceed the market wedges. The prices of other inputs o When a firm has a choice among alternative technologies, the choice it makes depends to some extent on relative input prices Technological Change o Technological change – the introduction of new methods of production or new
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ECO Notes 10-26 - 10/26/09 NOTES: Chapter 10 Labor Markets...

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