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University of Hawai‘i at Mānoa Department of Economics ECON 130 (003): Principles of Economics (Micro) Gerard Russo Lectures.

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Presentation on theme: "University of Hawai‘i at Mānoa Department of Economics ECON 130 (003): Principles of Economics (Micro) Gerard Russo Lectures."— Presentation transcript:

1 University of Hawai‘i at Mānoa Department of Economics ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lectures #27 & 28 Tuesday, April 20, 2004 and Thursday, April 22, 2004

2 ANNOUNCEMENTS LAST LECTURE Tuesday, May 4, 2004, 12:00-1:15 PM, BIL 152 Review Session Thursday, May 6, 4:30-5:30 PM, BIL 152 FINAL EXAMINATION Thursday, May 13, 2004, 12:00-2:00 PM, BIL 152

3 Lectures 27 & 28 Introduction to Factor (Input) Markets Competitive Output Market/Competitive Input Market Monopolistic Output Market/Competitive Input Market Competitive Output Market/Monopsonistic Input Market Monopolistic Output Market/Monopsonistic Input Market

4 Labor Markets Production Theory Total Product Average Product Marginal Product Labor Demand Marginal Revenue Product (MRP) Value of the Marginal Product (VMP)

5 Marginal Revenue Product (MRP) Marginal Revenue Product of Labor equals the Marginal Revenue times the Marginal Product of Labor MRP L = MR*MP L Units of Measure: $/L = ($/Q)*(Q/L)

6 Value of the Marginal Product (VMP) The Value of the Marginal Product of Labor equals the output Price times the Marginal Product of Labor VMP L = P*MP L Units of Measure: $/L = ($/Q)*(Q/L) For a competitive firm P=MR, therefore MR*MP=MRP=VMP=P*MP For a monopolistic firm P>MR, therefore P*MP=VMP>MRP=MR*MP

7 FACTOR COST Marginal Factor Cost (MFC) Average Factor Cost (AFC) Under a rule of one price (wage), the wage rate, W, equals the average factor cost, AFC W=AFC

8 $/L L MRP=VMP 0 DLDL Labor Market Competitive Input Market/Competitive Output Market $/L L 0 Competitive Firm SLSL W L* W=AFC=MFC=MRP=VMP

9 $/L L MRP L 0 DLDL Labor Market Competitive Input Market/Monopolistic Output Market $/L L 0 Monopolistic Firm SLSL W L* W=AFC=MFC=MRP<VMP VMP L

10 $/L L MRP L 0 DLDL Labor Market Competitive Input Market/Monopolistic Output Market Welfare Effects $/L L 0 Monopolistic Firm SLSL W LMLM VMP L LCLC Welfare Loss Due to Monopoly

11 $/L Q MRP L 0 D The welfare effects of monopoly can be viewed from either the output market or input market. $/Q L 0 Monopolistic Firm: Input Decision MC W LMLM VMP L LCLC Welfare Loss Due to Monopoly Monopolistic Firm: Output Decision MR QMQM QCQC Welfare Loss Due to Monopoly

12 $/L L 0 MRP L =VMP L MFC L Competitive Output Market/MONOPSONY S L : AFC L W=AFC<MFC=MRP=VMP W* L* Welfare Loss

13 $/L L 0 VMP L MFC L Monopolistic Output Market/MONOPSONY S L : AFC L W=AFC<MFC=MRP<VMP W* L* MRP L Welfare Loss

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