Section4 - UNIVERSITY OF CALIFORNIA, BERKELEY Department of...

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UNIVERSITY OF CALIFORNIA, BERKELEY Dorian Carloni Department of Economics ECON 100B, Fall 2011 SECTION 4: Aggregate Production and Productivity, Part 2 4.1. Factor Prices To calculate factor prices, the demand for and supply of each factor of production must be determined. Underlying assumptions: 1. The labor market is competitive 2. Workers are homogeneous 5. Individuals maximize utility 4.2. Labor Labor demand Demand for labor a. the costs of hiring additional workers: wage (nominal wage: W or real wage w = W P ) b. the of hiring additional workers: the marginal revenue product of labor (nominal MRPL = P ± MPL or in real terms MRPL P = MPL ) the nominal wage W = MRPL , or in real terms w = MPL: If 1. w > MPL 2. w < MPL
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Section4 - UNIVERSITY OF CALIFORNIA, BERKELEY Department of...

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