Chapter 16 Study Guide - Chapter Chapter 16 The Markets for Labor and Other Factors of Production Firms use to produce g Factors of Production labor

# Chapter 16 Study Guide - Chapter Chapter 16 The Markets for...

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Chapter 16: The Markets fo Production: or Labor and Other Factors of Firms use ___ to produce g/ s Factors of Production - labor, capital, natural resources, and other inputs used to produce g/s B/c there are many di ff erent types of labor, there are many di ff erent types of __ Labor markets The Demand for Labo or: Why is the demand for labor di ff erent from the demand for final g/s? b/c it is a derived demand- the demand for a factor of production that is derived from the demand for the good the factor produces Ex: of a derived demand: Apple’s iPod demand for labor to make iPods is derived from the underlying consumer demand from iPods. As a Result, we can say that Apple’s demand for labor depends primarily on two factors: 1.) The additional iPods Apple will be able to produce if it hires one more workers 2.) The additional revenue Apple receives from selling the additional iPods The Marginal Revenue P Product of Labor: Review: The marginal product of labor : The additional output a firm produces as a result of hiring one more worker In the table, why does the marginal product of labor decline as a firm hires more workers? b/c of the law of diminishing returns When deciding how many workers to hire, a firm is not interested in __ but in ___. How much output will increase as it hires another worker/ how much revenue will increase as it hires another worker. In other words: What matters is how much the firm’s revenue will rise when is sells the additional output is can produce by hiring one more worker. We can calculate this amount by: Multiplying the additional output produced by the product price This amount is called __. Marginal revenue product of labor- the change in a firm’s revenue as a result of hiring one more worker
To decide how many workers to hire, Apple must __ Compare the additional revenue it earns from hiring another worker to the increase in its costs from paying that worker. The di ff erence b/t these two is __ Profit (or loss) from hiring one more worker When are Apple’s profits increasing? What should it do? As long as the marginal revenue product of labor is greater than the wage/ continue to hire more workers When are Apple’s profits decreasing? When the marginal revenue product of labor is less than the wage/ it should hire fewer workers What happens when the marginal revenue product of labor is equal to the wage? Apple has maximized its profits by hiring the optimal number of workers So: When: MRP> Wage MRP< Wage MRP= Wage -hire more workers to increase Profits -hire fewer workers to increase Profits -optimal number of workers and is maximizing profits The Market Demand Cu urve for Labor: We can determine the market demand curve for labor the same way we __ Determine one for a good. It is determined by __ Adding up the quantity of labor demanded by each firm at each wage, holding constant all other variables that might a ff ect the willingness of firms to hire workers Factors That Shift the M Market Demand Curve for Labor: In constructing the demand curve for labor, we held

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