Chapter_3

Chapter_3 - Chapter3 LaborDemand...

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    Chapter 3 Labor Demand
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    2 Categorizing the Structure of Product  Markets Industry (market) Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly decreasing degree of competition
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    3 Categorizing the Structure of Labor  Markets Industry Structures Perfect Competition Monopsonistic Competition Oligopsony Monopsony decreasing degree of competition
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    4 Market Structures 16 different combinations of product and labor  market structures exist – each will have a different  affect on the wage and employment decision at the  level of the firm. Our focus: 1. Perfect competition in product and factor market  (chapter 3) 2. Monopoly in product market and monopsony in labor  market (chapter 4)
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    5 The Firm’s Production Function Describes the technology that the firm uses to produce  goods and services Production function specifies the output produced by any  combination of labor and capital.  Firms use two factors of production Labor (E) and Capital (K) to produce Q (output) Thus, Q = F(E,K)
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    6 Marginal Product Production technology determines the function F( ) Marginal product of labor and capital “summarize” that  information Marginal product of labor (MP E ) = Change in output  associated with hiring 1 additional worker, holding capital  constant Marginal product of capital (MP K ) defined similarly  Assume MP E > 0 and MP K > 0 
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    7 Example Marginal and average product of labor (holding  capital constant) E=# employees Q=Output MP E AP E 0 0 - - 1 15 15 15 2 32 17 16 3 52 20 17.34 Assume price of output is $3
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    8 The Total Product, the Marginal Product,  and the Average Product Curves   0 20 40 60 80 100 120 140 0 2 4 6 8 10 12 Number of Workers Output Total Product Curve 0 5 10 15 20 25 0 2 4 6 8 10 12 Number of Workers Average Product Marginal Product
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    9 Marginal Revenue Product Marginal revenue:  Change in revenue resulting from selling one more unit of  output. In a competitive product market, MR=p   The marginal revenue product of labor is: MRP E  = MP E  × MR   (in general) MRP E  = MP E  × p   (in a competitive product market) The marginal revenue product of capital is: MRP K  = MP K  × MR   (in general) MRP K  = MP K  × p   (in a competitive product market)
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    10 Value of Marginal and Average  Product Value of marginal product of labor = $ increase in firm  revenue generated by an additional worker, holding  capital constant VMP E  = p × MP E VMP =   MRP E   for perfect competition Value of average product of labor = $ value of output per  worker VAP E   = p × AP E  
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Chapter_3 - Chapter3 LaborDemand...

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