Lecture 22-Markets for Factors of Production

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Published on 1 Aug 2010
School
Department
Course
Professor
Thursday, January 7th, 2010.
Markets for Factors of Productions
Full-Time Earnings (Year 2007 Dollars)
Physicians (GPs): $140,832
Registered Nurses: $ 53,354
High School Teachers: $ 57,480
Actors: $ 41,694
Cooks: $ 24,353
1. What is economics explanation?
(Answer: Value of Marginal Product)
2. How good is economics explanation?
(Answer: Pretty Good)
Factors of Production
x Labour
x Capital (equipment, structures)
x Land
Insights
1. Demand for factor is a derived demand
2. Price of factor is determined by demand and supply
Example:
FIRM PRODUCES WIDGETS (Perfect Competition)
1. Labour is variable factor (principle of diminishing marginal product applies)
2. Price of widget: $5
3. Wage rate: $150 per day
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Document Summary

$ 24,353: what is economics explanation? (answer: value of marginal product, how good is economics explanation? (answer: pretty good) Insights: demand for factor is a derived demand, price of factor is determined by demand and supply. Firm produces widgets (perfect competition: labour is variable factor (principle of diminishing marginal product applies, price of widget: , wage rate: per day www. notesolution. com. Marginal product vale of marginal product (tp/l) (p * mp) Vmp slopes downward due to diminishing marginal product of labour. Maximizing profits: firms hires workers until vmp = w. If n = 2, vmp > w => hire more workers. If n = 4, vmp < w => hire fewer workers. If n = 3, vmp = w => profits are maximized: vmp = w and p = mc are equivalent. Note: at n = 3, mp = 30 and. W/mp = 150/30 = 5 = mc = p: vmp schedule = demand for labour schedule.

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