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Marginal Productivity Theory
Marginal Physical Product Extra Output from each additional unit of resource
Marginal Revenue Product Price x Extra Output Change in Total Revenue Resulting from the use of each additional unit of resource
See Overhead 4.3 Perfect competition Adding one variable resource – labor Columns 3 and 6 demonstrate the law of diminishing returns
Law of Diminishing Returns As successive increments of a variable resource (labor) are added to a fixed resource, the marginal product of the variable resource will eventually decrease.
Marginal Resource Cost Amount which each additional unit of resource adds to a firms total (resource) cost
MRP=MRC Rule It is profitable for a firm to hire additional units of a resource up to that point at which that resources MRP=MRC
MRP=MRC and MR=MC Rationale the same BUT point of reference is now inputs of a resource
Purely Competitive Labor Market Wage rate established by market supply and demand Firm is a wage taker
Imperfect Labor Market Firm is a price maker Pure monopoly, oligopoly, monopolistic competition Downward sloping demand curve
MRP of competitive seller falls for one reason: Marginal Product diminishes
MRP of Imperfectly competitive seller falls for two reasons: 1- Marginal Product diminishes 2- Product price falls as output increases
Conclusions For review check out chapter 27 pages 564-569 Tables 27-1 and 27-2 same as overheads
Presentation 1 The Demand for Resources. Derived Demand Demand that is derived from the products that the resource helps produce Resources don’t usually.
Factor Markets Unit IV. Basic concepts Similar to those of: – supply and demand –And product markets –Same concepts with new application.
The Demand For Resources Chapter 12 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
AP Economics December 8, Review Unit 3 Exam: Theory of the Firm 2.Begin Unit 4: Factor Markets 3.Unit 4 Exam NEW DATE: Monday, December 22 and Tuesday,
Economic Concepts. Ch 12-Demand For Resources Derived Demand-from the products that resources produce. Marginal Revenue Product(MRP)-change in tl revenue.
Chapter 28 Labor Demand and Supply (How many laborers should a firm hire, and at what wage?)
Introduction to Labor Markets Chapter 3: Short-run labor demand.
Agenda Collect HW Review/Overview Unions and Minimum Wage Stocks Research Reporting Former Students HW.
Chapter Twenty-Six Factor Markets. A Competitive Firm’s Input Demands u A purely competitive firm is a price- taker in its output and input markets. u.
Profit Maximization and the Decision to Supply
Problem Set #5 Points Distribution
1 Chapter 11 Practice Quiz Labor Markets Marginal revenue product measures the increase in a. output resulting from one more unit of labor. b. TR.
1 Chapter 11 Practice Quiz Tutorial Labor Markets ©2000 South-Western College Publishing.
Labor Markets Derived Demand for Workers Chapter 16.
Chapter 15 - Resource markets. Economic Resources Resource Resource Payment land rent labor wages capital interest entrepreneurial ability profit.
Theories of Imperfect Competition Major Contributors: –Piero Sraffa ( ) –Joan Robinson ( ) –Edward Chamberlin ( ) Sraffa’s 1926.
The Firm and Optimal Input Use Overheads. A neoclassical firm is an organization that controls the transformation of inputs (resources it controls) into.
LABOR DEMAND PROBLEM – How does an employer decide how many people to hire?
Labor Markets Supply and Demand Wages Wage = Price of labor including fringe benefits Real wage = adjustment for inflation.
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