Chapter 14 Markets for Factor Inputs
Chapter 14 Markets for Factor Inputs
Topics to be Discussed Competitive Factor Markets Equilibrium in a competitive Factor Market a Factor Markets with Monopsony Power a Factor Markets with Monopoly Power Chapter 14 Slide 2
Chapter 14 Slide 2 Topics to be Discussed ◼ Competitive Factor Markets ◼ Equilibrium in a Competitive Factor Market ◼ Factor Markets with Monopsony Power ◼ Factor Markets with Monopoly Power
Competitive Factor Markets ■ Characteristics 1) Large number of sellers of the factor of production 2)Large number of buyers of the factor of production 3The buyers and sellers of the factor of production are price takers Chapter 14 Slide 3
Chapter 14 Slide 3 Competitive Factor Markets ◼ Characteristics 1) Large number of sellers of the factor of production 2) Large number of buyers of the factor of production 3) The buyers and sellers of the factor of production are price takers
Competitive Factor Markets a Demand for a Factor Input When Only One Input Is variable o Demand for factor inputs is a derived demand . derived from factor cost and output demand Chapter 14 Slide 4
Chapter 14 Slide 4 Competitive Factor Markets ◼ Demand for a Factor Input When Only One Input Is Variable ⚫ Demand for factor inputs is a derived demand… ◆derived from factor cost and output demand
Competitive Factor Markets Demand for a Factor Input when Only one Input Is variable Assume Two inputs: Capital(K) and Labor(L e Cost of k is r and the cost of labor is w .K is fixed and L is variable Chapter 14 Slide 5
Chapter 14 Slide 5 Competitive Factor Markets Assume ◆Two inputs: Capital (K) and Labor (L) ◆Cost of K is r and the cost of labor is w ◆K is fixed and L is variable Demand for a Factor Input When Only One Input Is Variable
Competitive Factor Markets Demand for a Factor Input when Only one Input Is variable e Problem ◆ How much labor to hire Chapter 14 Slide 6
Chapter 14 Slide 6 Competitive Factor Markets ⚫ Problem ◆How much labor to hire Demand for a Factor Input When Only One Input Is Variable
Competitive Factor Markets Demand for a Factor Input when Only one Input Is variable Measuring the value of a Workers Output o Marginal revenue Product of labor (MRPL ●MRPL=(MP(MR) Chapter 14 Slide 7
Chapter 14 Slide 7 Competitive Factor Markets ◼ Measuring the Value of a Worker’s Output ⚫ Marginal Revenue Product of Labor (MRPL ) ⚫ MRPL = (MPL )(MR) Demand for a Factor Input When Only One Input Is Variable
Competitive Factor Markets Demand for a Factor Input when Only one Input Is variable Assume perfect competition in the product market o Then Mr= P Chapter 14 Slide 8
Chapter 14 Slide 8 Competitive Factor Markets ◼ Assume perfect competition in the product market ⚫ Then MR = P Demand for a Factor Input When Only One Input Is Variable
Competitive Factor Markets Demand for a Factor Input when Only one Input Is variable ■ Question o What will happen to the value of MRPL when more workers are hired? Chapter 14 Slide 9
Chapter 14 Slide 9 Competitive Factor Markets ◼ Question ⚫ What will happen to the value of MRPL when more workers are hired? Demand for a Factor Input When Only One Input Is Variable
Marginal Revenue Product Wages (S per hour) Competitive Output Market (P=MR) MRPIE MPIXP Monopolistic Output Market MRPIE MPI X MR (P≤MR) Hours of work Chapter 14 Slide 10
Chapter 14 Slide 10 Marginal Revenue Product Hours of Work Wages ($ per hour) MRPL = MPLxP Competitive Output Market (P = MR) MRPL = MPL x MR Monopolistic Output Market (P < MR)