Step+18.+The+Markets+For+the+Factors+of+Production-+Clair

=The Markets for the Factors of Production =

**__Introduction__** 

Definition of factors of production are INPUTS used to produce goods and services. Let's see what happens when suppliers are now people(laborers) and consumers are now firms! So how to do we figure out how many workers to hire?  __**What we will Learn:**__ -how are number of laborers decided? -how does some factors affect the supply and demand of labor? -how do firms maximize profit?

__**Key Terms: **__ 1. factors of production: the inputs used to produce goods and services 2. productional function: the relationship between the quantity of inputs used to make a good and the quantity of output of that good 3. marginal product of labor: the increase in the amount of output form an additional unit of labor 4. diminishing marginal product: (again!) the property whereby the marginal product of an input declines as the quantity of input increases 5. Value of marginal product: the marginal product of an input times the price of the output.

 __**Topics**__

**1) SUPPLY and DEMAND**
-just like how other markets are greatly affected by their supply and demand, so does the market of labor. -production function show the relationship between the quantity of input and the quantity of output of a good. -the number of hiring workers are all depended on supply and demand.

**2)How do we find?**
-marginal product of labor is the INCREASE in the amount of output due to additional unit of labor. hint hint* doesn't it sound like marginal revenue? : )

-however, the increase doesn't go on forever (if it did, companies would hire endless amount of people!) -this is due to the theory of diminishing marginal product (we've learned this before!) -So, as more and more workers are hired, each additional labor causes less increase in production than the previous additional labor. -This is why the production frontier gets FLATTER as the number of workers INCREASE

-The Value of Marginal Product is the marginal product of the input multiplied y the market price of the output

-This decreases as the number of labor increases because the price is constant but MPL decreases due to diminishing marginal product.

The best number of workers to hire for a firm that wants to maximize profit is where VMPL= WAGE because that's = to how firms decide on where marginal revenue= marginal cost. Think about it, VMPL is marginal revenue and wage is marginal cost since they differ for each additional labor! : )

**3) What causes labor demand curves to shift?**
-so firms choose their number of workers where the VMPL= wage -however, the supply and demand of labor changes due to 3 factors each:

__ CONCLUSION: __
So now you know how companies decide on how many people they want to hire! So if you have a company that you want to get into, maybe increase their product price or disturb their technological advances. ;)

__**QUIZ**__ 1. Is labor a factor of production? (T/F) 2. Technology influences the supply curve. (T/F) 3. Diminishing marginal product occurs in the market of labor (T/F) 4. As immigration increases, supply decreases. (T/F)

Answers 1. T 2. F-it affects demand curve! 3. T 4. T