Class Notes (920,614)
CA (542,313)
UTSG (45,870)
ECO (1,645)
ECO101H1 (575)
Jack Carr (83)
Lecture

Markets for Factors of Production

3 Pages
121 Views

Department
Economics
Course Code
ECO101H1
Professor
Jack Carr

This preview shows page 1. Sign up to view the full 3 pages of the document.
Topic 12 t Markets for Factors of Production
(Jan 10th)
Outline:
1. The Factors of Production
2. Derived Demand for Labor: An Example;
- MRP(VMP) of labor;
- Profit-Maximizing Behavior of Competitive Firm;
- Demand for Labor = MRP of Labor
- P=MC & W=VMP
3. Interdependence of Product and Factor Markets
4. Workers are Paid their MRP/VMP
z The Factors of Production
-- Labor;
-- Capital (equipment; structures);
-- Land;
z Derived Demand for Labor
Insight: Demand for factors is a derived demand;
1. (VMP) Value of Marginal Product = (MRP) Marginal Revenue Product
-- Economic explanation of how compensation is determined;
e.g. Firm Produces Widgets (Perfect Competition);
- Labor is variable factors (principle of DMP applies);
- Therefore assumed short-term, and fixed costs exist;
- P=$5, Wage(W) = $150/day
Number of workers
Total Product
Marginal Product
VMP/MRP (PxMP)
0
0
-
-
1
50
50
250
2
90
40
200
3
120
30
150
4
140
20
100
- Question: how many workers will the firm hire?
Insight:
-- Firm will not hire a worker unless his VMP is at least equal to the wage rate;
e.g. if W=$200, firm will not hire the 3rd worker since this worker is paid $200 only to contribute $150.
-- Therefore since W=$150, the firm will hire three workers.
2. Profit-Maximizing Behavior of Competitive Firm;
-- Firm hires workers until VMP=W;
-- If n=2, VMP>W; hire more workers;
-- If n=4, VMP<W; hire less workers;
-- If n=3, VMP=W; profits are maximized;
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
Topic 12 J Markets for Factors of Production (Jan 10 )h Outline: 1. The Factors of Production 2. Derived Demand for Labor: An Example; - MRP(VMP) of labor; - Profit-Maximizing Behavior of Competitive Firm; - Demand for Labor = MRP of Labor - P=MC & W=VMP 3. Interdependence of Product and Factor Markets 4. Workers are Paid their MRPVMP z The Factors of Production -- Labor; -- Capital (equipment; structures); -- Land; z Derived Demand for Labor Insight: Demand for factors is a derived demand; 1. (VMP) Value of Marginal Product = (MRP) Marginal Revenue Product -- Economic explanation of how compensation is determined; e.g. Firm Produces Widgets (Perfect Competition); - Labor is variable factors (principle of DMP applies); - Therefore assumed short-term, and fixed costs exist; - P=$5, Wage(W) = $150day Number of workers Total Product Marginal Product VMPMRP (PxMP) 0
More Less
Unlock Document


Only page 1 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit