Final lecture 14 5

Final lecture 14 5 - Final lecture 14 5/11/11 Factors of...

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Final lecture 14 5/11/11 Factors of production- input used to produce goods service Ex: labor, land, capital (structure and equipment ) How are the prices of FOP determined? Supply and demand LABOR Demand for labor: Demand for labor is derived (not direct)- a firm’s demand for labor is derived from its decision to supply another goods . Ex: Supply of apple and demand for apple pickers. See note 1 Before firms hire, we should assume: 1) firms are price takers in both markets(perfectly competitive ) 2) Firms only care about profit maximization How much labor will firm demand. It depends on the firm’s production process EX: apple production (bushel); P apple=$10; wage= $50 Labor output MPL VMPL WAGE CHANG IN PROFIT 0 0 0 0 0 0 1 100 100 $1000 $500 500 2 180 80 $800 $500 300 3 240 60 $600 $500 100 4 280 40 $400 $500 -100 5 300 20 $200 $500 -300 Production function Firms will think at the margin: How much each additional worker can produce Marginal product of labor(Mpl) The increase in amount of output from an additional unit
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Final lecture 14 5 - Final lecture 14 5/11/11 Factors of...

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