1. Competitive vs. Market Power Firms in the Factor Market
Chapter 18 - Part 3

2. Market Supply Curve of Labor
Market supply curve for labor is upward sloping
represents trade-off between Work & Leisure
upward-sloping means an ↑ in wages induces more people to work
What will
Get me to work?
Entire Labor Market

3. Entire Labor Market Increase in Demand for Workers
Increase in Supply of Workers

4. Competitive FACTOR Markets
LABOR MARKET
Entire Factory Industry
1- Individual Firm
Low Skilled Workers
Low Skilled Workers
Wage SL
Wage
A single Firm can hire all their workers at market wage rate DL
DL= MRPL
$10 Q1 E1
$10
SL = MFC Q1
Qty
Qty

5. Market Power Firms Competitive Firm Market Power Firms Perfect
Competition
Monopolistic
Competition
Monopoly
Oligopoly
Highest Quantity
Lowest Quantity
Most market power firms are competitive in the FACTOR MARKET
Market Power industries produce _______ than Competitive Industries
So they need _______ INPUTS!

6. Competitive vs. Market Power Firm
MR = P for a competitive firm
MR < P for a firm with market power
MRP = [MPL * Price] only for
competitive firms in output market!
Therefore: MRPC > MRPM
MRPC = MPL * P (or MR)
MRPM = MPL * MR P
MRPC
MRPM
Wage Rate
End Result:
Market power firms
hire less workers but pay same wage!
(Monopoly, Oligopoly, Monopolistic Competition P1
QM QC
Qty

7. Competitive vs. Market Power
Competitive firm (output market) (Price = MR)
Hire labor where MRPL = wage rate (MFCL)
They are wage takers (factor market)
They are price takers (product market) so P = MR
MRP = MR * MPL
Market Power firm (output market) (P > MR)
They are wage takers
Not price takers (product market) so P > MR
MRP = MR * MPL (means: MRP ≠ P * MPL)
Market power industries hire less of all factors (including workers)

8. Worksheet #3: Competitive vs. Market Power Firms