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Ch. 18 Factors of Production

Ch. 18 Factors of Production - Chapter 18 Markets for...

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Markets for Factors of Production Chapter 18
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1 general definition, 3 general categories “inputs used to produce goods and services” Land, labor and physical capital AREC455, ECON470, ENME426 Focus on labor in ECON200 Basic principles apply to all factors of production
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Demand for Labor: Derived Examine the logic behind the label “Derived Chapters 13 -17: why are firms in business? Which variables were the focus of much of our analysis in chapters 14, 15, 16, & 17?
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Picking the quantity of input involves calculations similar to those for picking the quantity of output which maximizes profits. What’s the marginal revenue from hiring another unit of labor? What’s the marginal cost of hiring another unit of labor?
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Calculating a firm’s Demand for Labor : Quantity of Labor (L) Quantity of Output (Q) MPL= ∆ Q ∆ L VMPL = P * MPL 0 0 0 0 1 7 7 $2 * 7 = $14 2 13 6 $2 * 6 = $12 3 18 5 4 22 4
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Determinants of Labor Demand What happens if the market price of output changes? What if the firm is not in a perfectly competitive product market? What happens if the quantity of other resources changes? What happens if technology changes? How do we get a market demand curve?
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MARKET EXAMPLE: Lumber Prices and Housing Markets Demand for lumber = derived demand Starting in 2001, in demand for housing demand for lumber lumber prices (68% by 2004) 2005-2007, in housing demand demand for building products Sharp fall in lumber prices
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