Presentation is loading. Please wait.

Presentation is loading. Please wait.

Factor Markets Chapter 18.

Similar presentations

Presentation on theme: "Factor Markets Chapter 18."— Presentation transcript:

1 Factor Markets Chapter 18

2 Markets for Factors of Production
Factors of production are inputs used to produce goods & services Demand for a factor of production is a derived demand: A firm’s demand for a factor of production is derived from demand for their own product

3 Labor markets, like other markets, are governed by the forces of supply & demand
(a) The Market for Apples (b) The Market for Apple Pickers Price of Wage of Apples Apple Pickers Supply Demand Supply Demand P Q L W Quantity of Quantity of Apples Apple Pickers The demand for apple pickers is derived from the market demand for apples Copyright©2003 Southwestern/Thomson Learning

4 Marginal Product of Labor
Production Function- illustrates the relationship between quantity of inputs & quantity of output Marginal Product of Labor (MPL)- the increase in output from an additional unit of labor MPL = Q/L or MPL = (Q2 – Q1)/(L2 – L1)

5 Diminishing Marginal Product of Labor:
As more workers are added Marginal Product Labor Declines MPL = Q/L Diminishing Marginal Product of Labor: Each additional worker contributes less to production than the prior one

6 The Production Function
Diminishing Marginal Product makes the Production Function becomes “flatter” Quantity of Apples Production function 300 280 240 180 100 1 2 3 4 5 Quantity of Apple Pickers

7 Marginal Revenue Product (MRP)
MRP = The marginal product of input multiplied by the market price of output (measured in dollars) MRPL = MPL  P MRP = Δ in Total Revenue / Δ in Resource Qty Qty Total Marginal Price MRP Labor Product Product ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Price for a competitive firm equals MR & remains constant Assume Price = $0.50

8 To Maximize Profit A competitive firm hires workers up to the point where MRP =Wage The MRP curve is the labor demand curve for a competitive, profit-maximizing firm.

9 MRP & Maximizing Profit
Value When a competitive firm hires labor up to the point where MRP = Wage, it also produces up to the point at which the P = MC of the Marginal Product Marginal Revenue Product (demand curve for labor) Market wage Profit-maximizing quantity Quantity of Apple Pickers

10 Worksheet Lesson 2, Activity 44 New Terms: Marginal Product of Labor
Marginal Revenue Product

Download ppt "Factor Markets Chapter 18."

Similar presentations

Ads by Google