Chapter+18+Markets+for+the+Factors+of+Production+JBS

=**Chapter 18 Markets for the Factors of Production JBS **= 


  **factors of production ** : the inputs used to produce goods and services

 **production function ** : the relationship between the quantity of inputs used to make a good and the quantity of output of that good

 **marginal product of labor ** : the increase in the amount of output from an additional unit of labor

 **diminishing marginal product ** : the property whereby the marginal product of an input declines as the quantity of the input increases

<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> **<span style="font-family: Tahoma,Geneva,sans-serif;">value of the marginal product: ** <span style="font-family: Tahoma,Geneva,sans-serif;"> the marginal product of an input times the price of the output

<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> **<span style="font-family: Tahoma,Geneva,sans-serif;">capital: ** <span style="font-family: Tahoma,Geneva,sans-serif;"> the equipment and structures used to produce goods and services

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<span style="font-family: Tahoma,Geneva,sans-serif;"> Factors of Production : inputs used to produce goods Land, labor, and capital Derived Demand : A firm's demand for a factor of production is derived from its decision to supply a good in another market.

Factor demand by considering how a competitive, profit-maximizing firm decides how much of any factor to buy.

Labor markets are different from most other markets because labor demand is a derived demand.

1. we assume that a firm is competitive for both a good and a labor of a good. A competitive firm is a price taker The firm takes the price and the wage as given by market conditions.

2. We assume that the firm is price-maximizing. It only cares about profit, which equals total revenue - total cost. the demand for labor is determined by the WAGE.

<span style="font-family: Tahoma,Geneva,sans-serif;"> Production Function : relationship between quantity of inputs + outputs <span style="font-family: Tahoma,Geneva,sans-serif;">Value of marginal product : price of output * marginal product A competitive, profit- maximizing firm hires workers up to t/he point where Value of marginal product = wage, because there has to be a marginal product.
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Diminishing marginal product also exists here (:

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Demand Curve shift 1. more demand If the price goes up, the value of marginal product goes up, demand goes up as the price goes up 2. technological change... 3.supply of other factors....

Supply Curve shift 1. changes in tastes 2. changes in alternative opportunities 3. immigration

<span style="font-family: Tahoma,Geneva,sans-serif;"> =<span style="color: #008000; font-family: Tahoma,Geneva,sans-serif;">Equilibrium in labor market = =<span style="font-family: Tahoma,Geneva,sans-serif;"> = <span style="font-family: Tahoma,Geneva,sans-serif;"> Determinants:

<span style="font-family: Tahoma,Geneva,sans-serif;"> -any event that changes the supply or demand for labor must change the equilibrium wage and the value of the marginal product by the same amount because there must always be EQUAL.
 * <span style="font-family: Tahoma,Geneva,sans-serif;">wage adjusts to balance the supply and demand for labor
 * <span style="font-family: Tahoma,Geneva,sans-serif;">wage equals the value of the marginal product of labor

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=<span style="color: #008000; font-family: Tahoma,Geneva,sans-serif;">Markets of Land and Capital = =<span style="font-family: Tahoma,Geneva,sans-serif;"> = <span style="font-family: Tahoma,Geneva,sans-serif;"> Capital : stock of equipment and structures used for production.

The price in the land and capital markets depend on the rental price of land and capital.

Labor, land and capital each earn the value of their marginal contribution to the production process.

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bibliography:

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