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 Capital (equipment, structures)
1. Demand for factor is a derived demand
2. Price of factor is determined by demand and supply
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
$ 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.