100%(1)1 out of 1 people found this document helpful
This preview shows page 15 - 19 out of 39 pages.
2.Example: Kellogg and Post have each developed a new cereal that it would sell for $3 per box. (Assume that the marginal cost of producing the cereal is zero.) Each company knows that if it
spends $10 million on advertising, it will get 1 million new consumers to try the product. If consumers like the product, they will buy it again.c.By its willingness to spend money on advertising, Kellogg signals to consumers the quality of its cereal.3.Note that the content of the advertisement is unimportant; what is important is that consumers know that the advertisements are expensive.
CHAPTER 18THE MARKETS FOR FACTORS OF PRODUCTIONBy the end of this chapter, students should understand:the labor demand of competitive, profit-maximizing firms.the household decisions that lie behind labor supply.why equilibrium wages equal the value of the marginal product of labor.how the other factors of production—land and capital—are compensated.how a change in the supply of one factor alters the earnings of all of the factors.
Student Learning OutcomesChapter 18 is the first chapter in a three-chapter sequence that addresses the economics of labor markets. Chapter 18 develops and analyses the markets for the factors of production—labor, land,and capital. Chapter 19 builds on Chapter 18 and explains in more detail why some workers earn more than do others. Chapter 20 addresses the distribution of income and the role the government can play in altering the distribution of income.The purpose of Chapter 18 is to provide the basic theory for the analysis of factor markets—the markets for labor, land, and capital. As you might expect, we find that the