ECO 2101 Factor Markets Flashcards
(21 cards)
What is an upstream and downstream monopoly?
Upstream firms sit earlier in supply chain (raw components)
Downstream firm sit later in the supply chain (transforms inputs or distributes them to final consumer)
What are the main differences between upstream and downstream firms?
downstream firm controls most of the variables that determine consumer demand not true for upstream
As upstream firms sell to retailers, retailers compete with each other, consumers don’t
What is a negative of vertical integration?
Less efficient transactions in exchange for internal monopoly
How is labour related to demand?
It is derived demand
How do firms choose whether to employ the marginal worker?
They equate the marginal revenue and marginal cost from employment
MR(L)=MC(L)
What is the marginal cost of labour for firms relatively small to the labour market?
MC(L)=w(bar)
average wage
What is the MR(L) made up of ?
2 components
MP(L) marginal product labour extra output
MR additional revenue from selling output
What is the equation for MR(L)
MR(L)=(MP(L))MR
What is MP(L) times MR defined as?
MRP(L)
Marginal Revenue Product of Labour
What is MRP(L) if the firm is competitive on the output market?
COmpetitive on output market means MR=p so:
MRP(L) = (p)MP(L)=VMP(L)
VMP(L) - value of the marginal product of labour
Draw a graph showing optimal employment of labour
check ppt
What does the MRP(L) curve represent and why is it downwards sloping?
It represents the firms labour demand curve and is downwards sloping because of diminishing returns to labour
Draw what happens when an industry expands its labour input causing a fall in w on SR industry labour demand
ppt 51
Draw a graph showing the difference in short run labour demand for monopoly and perfect competition
ppt 52
Draw a graph showing MC(L) and AC(L) with L demand for a monopsony (only buyer of labour)
ppt 53
What is a minimum wage?
A price floor to ensure firms pay above equilibrium
Draw a graph showing minimum wages in a competitive labour market
check ppt 54
What is the effect of a minimum wage in a monopsony labour market?
Can increase employment since it reduces MC(L)
Draw a graph showing a minimum wage on a monopsony labour market
ppt 55
L1 is maximum increase in employment
w2 maximum possible min wage without decreasing employment
What does a monopsonist do when wage discriminating?
Equalise marginal labour costs across two groups by paying less to less elastic and higher wage to more elastic
Draw a graph showing wage discrimination from a monopsony employer
check ppt 56
