the inputs used to produce goods and services.
Prices and quantities of these inputs are determined by _________
Factors of production: land, labor, capital, entrepenuership, technology
supply & demand in factor markets.
Demand for a factor of production is a ___________
derived demand – derived from a firm’s decision to supply a good in another market.
Two Assumptions
all markets are competitve (perfect competiton- price takers)
maximizing profits (MR=MC)
-Each firm’s supply of output and demand for inputs are derived from this goal.
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
and formula
the increase in the amount of output from an additional unit of labor
MPL= Change in Quantity/ change in Labor
Value of the marginal product:
formula & solution
the marginal product of labor (input) x the price of the output
VMPL = P x MPL
solution: covert MPL to dollars (need to know d price of the output)
To maximize profits, hire workers up to the point where ___________
The VMPL curve is the __________
VMPL = W.
labor demand curve
-downsloping
- negative related to wages
-Labor demand curve = VMPL curve.
Anything that increases P or MPL at each L will _________ VMPL and shift labor demand curve ______.
increase
upward
Things that Shift the Labor Demand Curve (3)
changes in the output price; P (Decreases= shift left; increases= shift right)
technological change (affects MPL) (Decreases= shift left; increases= shift right)
the supply of other factors (affects MPL) (Decreases= shift left; increases= shift right)
The Connection Between Input Demand (FOP) & Output Supply (Final product)
Marginal Cost (MC)- cost of producing an additional unit of output
= ∆Total Cost/∆Quanity
SO: MC= Wages/ MPL
