MARGINAL REVENUE AND INCOME MONEY! MONEY! MONEY! Revenue in Market Systems

Perfect Competition Monopolisti c Competition OligopolyMonopoly Number of Businesses Very manyManyFewOne Standard Product alwaysNeverSometimesNot applicable Entry & ExitVery easyFairly easyDifficultVery difficult Market PowernoneSome great ExamplefarmingRestaurantsAutomobile manufacturing Public utilities

Revenue & Perfect Competition Average Revenue- business’s total revenue per unit of output. AR= TR/Q Marginal Revenue- The extra total revenue earned from an additional unit of output. MR=^TR/^Q Marginal Revenue Product- The change of total revenue associated with employing each new unit of resource. TR2-TR1= Marginal Revenue Product.

Revenue and Perfect Competion

Wages and Salaries Increases in demand and decreases in supply cause wages to be higher whereas decreases in demand and increases in supply cause wages to be lower

Demand, Supply & Wages of Plumbers in a Canadian City (fig.8.2/8.3) p. 160 D2 Shortage Number of Plumbers (wages per hour (dollars)

A decrease in the demand for plumbers D2 Surplus Number of Plumbers (wages per hour (dollars)

S2S2 A Decrease in the Supply of Plumbers Shortage Number of Plumbers (Wages per hour ($)

S2S2 An increase in the Supply of Plumbers Surplus Number of Plumbers (Wages per hour ($)

Profit Maximization Produce the quantity of output where Marginal Revenue and Marginal cost intersect.

Market for Labour Marginal Productivity Theory: the theory that businesses use resources on the basis of how much extra profit these resources provide.  Will only hire more people if they will make money with this extra person.

Wages and Determinants 7 different determinants Labour Productivity, Education, Experience, Job Conditions, Regional Disparities, Market Power, Discriminations.

Labour Productivity The output per worker in a given time determines the wage of that work.

Education The more education a worker needs to perform a job, the higher is the pay. Work that has job-related training tends to have a higher marginal revenue. Thus, education effects labour demand. Also effect on supply-Human Capital- the income earning potential of a person’s skills and knowledge.

Experience On the job experience increases a worker’s productivity-pushing up the demand for the worker’s labour and wage rate. Seniority rights allows older workers to be paide more.

Job Conditions Sometimes there are certain jobs that are less appealing thus in order to attract workers employers offer higher wages.  E.g Garbage collectors

Regional Disparities Wage differences also have a geographic dimension.  For example a fisherman in BC may earn more than a fisherman in Newfoundland.  Or a teacher in Canada will earn more than a international teacher in Cairo.

Market Power The market power workers have also effect their wages. We will look at Unions in more detail later.

Discrimination Job Discrimination also has an effect for example someone is hired based on a trait rather than credentials. E.g. Race, sex, or physical ability.

Forms of Income Rent: Payment for the use of a resource, specifically land Interest: Price paid to a lender for the use of a sum of money over a period of time Savings: Part of income that is not spent on goods and services

Forms of Income: Profit What is left over after all the costs have been paid for from the revenue earned by the business (i.e. Total Revenue – Total Costs) Reward to the entrepreneur for taking the risk of starting a business Prime motivator to start a business and run it well to satisfy the wants and needs of consumers

Circular Flow Model