The markets for the Factors of production Chapter 18
The Markets for the Factors of Production Chapter 18
Factors of Production Factors of production are the inputs used to produce goods and services
Factors of Production • Factors of production are the inputs used to produce goods and services
The market for the Factors of production o The demand for a factor of production is a derived demand A firms demand for a factor of production is derived from its decision to supply a good in another market
The Market for the Factors of Production • The demand for a factor of production is a derived demand. – A firm’s demand for a factor of production is derived from its decision to supply a good in another market
The demand for labor Labor markets, like other markets in the economy are governed by the forces of supply and demand o Most labor services, rather than being final goods ready to be enjoyed by consumers, are inputs into the production of other goods
The Demand for Labor • Labor markets, like other markets in the economy, are governed by the forces of supply and demand. • Most labor services, rather than being final goods ready to be enjoyed by consumers, are inputs into the production of other goods
TheⅤ ersatility of Supply and demand. ●● (a) The Market for Apples (b) The Market for Apple Pickers Wage of Price of Apple Apples Supply p Ickers upply P m■ Demand Demand Quantity 0 Quantity of of Apples Apple Pickers
(a) The Market for Apples (b) The Market for Apple Pickers Quantity of Apples Quantity of Apple Pickers Q L P W 0 0 Price of Apples Wage of Apple Pickers Demand Demand Supply Supply The Versatility of Supply and Demand
The production function and the Marginal Product of labor The production function illustrates the relationship between the quantity of inputs used and the quantity of output of a good
The Production Function and The Marginal Product of Labor • The production function illustrates the relationship between the quantity of inputs used and the quantity of output of a good
How the Competitive Firm Decides How Much labor to hire Marginal Product value of the of Labor Marginal Product Marginal Profit L abor Output MPL of Labor Wage [A Profit= VMPL-w L Q MPL=△Q/△ ⅤMPL= PXMPL 01 0 1001005100 500 $500 180 80 800 $500 300 2345 240 60 $600 $500 $100 280 40 $400 $500 $100 30020 $ 200 $500 3
Labor L Output Q Marginal Product of Labor MPL Value of the Marginal Product of Labor VMPL=PxMPL Wage W Marginal Profit 0 0 1 100 100 $1,000 $500 $500 2 180 8 0 $800 $500 $300 3 240 6 0 $600 $500 $100 4 280 4 0 $400 $500 -$100 5 300 2 0 $200 $500 -$300 D Pr ofit = VMPL- W MPL = D Q/ D L How the Competitive Firm Decides How Much Labor to Hire
The Production function 350 300· 日温■ 250 子200 150 画■■■■ 100·““ 50 0 Quantity of Apple Pickers
0 0 50 100 150 200 250 300 350 0 1 2 3 4 5 6 Quantity of Apple Pickers Quantity of Apples 1 2 3 4 5 The Production Function
T he production function and The Marginal Product of Labor The marginal product of labor is the increase in the amount of output from an additional unit of labor MPL=△Q△L MPL=(Q2-Q1)(L2-L1)
The Production Function and The Marginal Product of Labor • The marginal product of labor is the increase in the amount of output from an additional unit of labor. • MPL = DQ/DL • MPL = (Q2 – Q1)/(L2 – L1)
Diminishing Marginal Product of labor as the number of workers increases, the marginal product of labor declines As more and more workers are hired, each additional worker contributes less to production than the prior one The production function becomes flatter as the number of workers rises
Diminishing Marginal Product of Labor • As the number of workers increases, the marginal product of labor declines. • As more and more workers are hired, each additional worker contributes less to production than the prior one. • The production function becomes flatter as the number of workers rises
