Factors Market Part 1

Factors of Production Factors, Resources, Inputs Land Labor Capital Entrepreneurship

Perfectly Competitive Labor Market Households = Supply Firms = Demand Derived Demand Product Market Demand Shifts Labor Market Demand

Perfectly Competitive Market and Firm

MPP and MRP MPP- marginal physical product Additional output from additional unit of a resource Change in TP from one more unit of resource MRP- marginal revenue product Additional revenue from additional unit of resource Change in TR from one more unit of resource MPP X MR= MRP MPP X Price = MRP (in a perfectly competitive product market)

MRC Marginal Resource Cost (MFC=Marginal Factor Cost) Additional cost from one more unit of resource For labor, this is the wage Perfectly Competitive Labor Market Firms are wage takers MRC (MFC) is perfectly elastic

Tomorrow’s Quiz Derived Demand MRP MFC (MRC) Monopsony Extra Credit: Cost minimizing and Profit maximizing combination of resources (open packet)

Monopsony

Cost Minimizing Combination of Resources at a Given Level of Output MPP/$ of Labor = MPP/$ of Capital $ = MRC Example MPP last unit of labor = 5 Wage rate (MRC)= $10 MPP last unit of capital = 8 MRC = $16 Labor MPP/$ = .5 Capital MPP/$ = .5

Optimal Combination (Profit Maximizing) of Resources MRP/$ of Labor = MRP/$ of Capital= 1 $ = MRC Example MRP last unit of labor = $10 Wage rate (MRC)= $10 MRP last unit of capital = $16 MRC = $16 Labor MRP/$ = Capital MRP/$ = 1

Perfectly Competitive Market and Firm Supply = Marginal Resource Cost (MRC) Demand = Marginal Revenue Product (MRP) Profit-Max Q of Labor: MRP=MRC

What’s Left 4-6 Factors Market 7-14 Government and Market Failure 19/20 Bull's-eye Physical Challenge On to MACRO

Year in Review Michael Brown and Eric Garner June SCOTUS decision David Sweat and Richard Matt Refugee Crisis- most accepting country SC Church shooting town US visit Former Pat pleads guilty

Perfectly Competitive Firm MRP>MRC- hire more MRC>MRP- fire some

11. Under what conditions is a firm’s MRP of labor curve the same as its demand curve for labor? If firm hires in perfectly competitive resource market

MRP Change in TR with one additional unit of an input (labor) PC product market may use MRP = Product Price X MPP Monopolist in Product Market MUST use Change in TR

Monopolist and Perfectly Competitive Labor Market Monopolist must drop the product price to sell more. Monopolist must drop price when hiring more workers. MRP is downward sloping due to decreasing MPP and decreasing price. Must use change in TR to calculate MRP. CANNOT multiply price and MPP because price is NOT MR!

Individual Supply of Labor Curve Trade-Off between work and leisure

Individual Supply of Labor Curve Trade-Off between work and leisure

Minimum Wage and Labor Unions

Minimum Wage in PC Labor Market?

Unions Collective Bargaining _________ of workers Clayton Antirust Act (1914)

Unions in PC Labor Market?

Unions and Monopsonistic Labor Market?

Unions and Monopsonistic Labor Market Bilateral Monopoly One buyer, One seller Outcome is difficult to predict

Minimum Wage with Monopsony in Labor Market?

Combination of Resources Cost-Minimizing MPPL/MFCL = MPPC/MFCC Profit- Max MRPL / MFCL = MRPC / MFCC = 1

Other Factors Labor = Wage Capital = Interest (that’s it until macro) Land = Rent Entrepreneurship- profit

Land (Natural Resources)

Economic Rent Term originally only applied to land Payment for land above price necessary for land to be made available A decrease in the payment for land will not reduce the quantity of land available for rent.

Economic Rent- modern Payment for any factor above price necessary for that factor to be employed A decrease in the payment for the factor will not reduce the available supply of the factor

Economic Rent- in other words Payment for/to any factor above the payment required by its owner

Wage Determinant Productivity *American worker overseeing mechanized assembly line *Foreign worker hand painting a decoration

Wage Differential Skills/Knowledge Limits supply MRP Risk Access

Human Capital Investment to improve skills and productivity of labor Self or Firm High wage jobs OFTEN include large human capital investments *Profession/Unions often push for high human capital requirements.