Factor Markets Flashcards
(6 cards)
What are factors of production
The inputs used to produce goods and services
Most important factors of production
- Labour (human inputs)
- Land (natural resource)
- Capital (Physical and human)
Prices and quantities of these inputs are determined by supply and demand
What does the production function show
The relationship between quantity of inputs and the quantity of output of a good.
Q = f (L)
What is the marginal product of labour (MPL)
The increase in the amount of input from an additional unit of labour
MPL = (change Q / change L)
What is diminishing marginal product
The number of workers increases as the marginal product of labour declines.
As more workers are hired, each additional worker contributes less to production
What is the Value of the Marginal Product
The additional output (in monetary terms) due to ome additional workers hired.
VMPL = P x MPL
