Lecture+23+November+30

Lecture+23+November+30 - Todays agenda Markets for factors...

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Today’s agenda Markets for factors of production Profit-maximizing demand for an input Utility-maximizing supply of an input Coming attractions… Final Exam College Avenue Gym Annex Friday, December 18 12 to 3 pm Not in Scott 123!
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Importance : Incomes are determined there: Factor Markets pq nn 11 2 2 + + + L
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Importance : Incomes are determined there: Explain incomes Explain distribution of income among consumers Factor Markets pq nn 11 2 2 ++ + L
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Demand for factors of production Demand for an input is a derived demand Aggregate demand = sum of all firms’ demands
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Profit-maximizing input demand Assume One variable input: L Firm is a price taker in output market input market Hire more labor as long as MR(labor) > MC(labor) MC(labor) = P L MR(labor) = proceeds from selling the worker’s marginal product = (P output ) (MP L ) (P output ) (MP L ) = Value of the marginal product of labor = VMP L
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Demand for labor Q/L L MP L
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Demand for labor Q/L L MP L $/L L P O MP L
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Demand for labor Q/L L MP L 17 5 $/L L P O MP L 17 Suppose P O = $4
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Demand for labor Q/L L MP L 17 5 $/L L P O MP L 17 20 Suppose P O = $4
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Demand for labor $/L L P O MP L w 1
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Demand for labor
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Demand for labor
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Demand for labor
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Demand for labor Marginal revenue product of labor IS the demand curve for labor
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Lecture+23+November+30 - Todays agenda Markets for factors...

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