markets of factors of production Flashcards
derived demand
the demand for a factor of production is derived demand
a firm’s demand for a factor of production is derived from its decision to supply a good in another market
diminishing marginal product
as a firm hires more workers, each additional worker contributes less to production than the prior one,
the production function becomes flatter as amount of workers rises
production function
shows the quantity of inputs used and the quantity of output of a good
marginal product of labour
the increase in output from an additional unit of labour
MPL
= ^Q/^L
=(Q2-Q1)/(L2-L1)
VMPL
=MPL x P
To maximise profit…
the comp. profit maximising firm hires workers up to the point where the VALUE of the marginal product of labour = the wage
L = wage
VMPL diminishes…
as the amount of workers rises, because the price is CONSTANT
The labour supply curve…
reflects workers’ decisions about the labour-leisure tradeoff as opportunity cost changes
labour supply and labour demand…
…determine the equilibrium wage
what causes the labour demand curve to shift?
output price
tech. change
what causes the labour supply curve to shift?
changes in tastes
changes in alt opportunities
immigration
capital
equipment and structures used to produce goods and services
the rental price of land and rental price of capital…
are determined by supply and demand
