ECON 2000 Lecture Notes - Lecture 60: Real Wages, Marginal Product, Production Function
14 May 2018
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ECON 2000
Lecture 60
- Real rental price of capital = rental price measured in units of goods
rather than in dollars
- Firm demands each FoP until that factor’s marginal product falls
to equal its real factor price
Division of national income
- If all firms in economy are competitive and profit-maximizing, then
each FoP is paid its marginal contribution to the production process
- Real wage paid to each worker = MPL and real rental price paid to
each owner equals MPK
- Total real wages paid to labour are MPL x L and the total real rent
return paid to capital owners is MPK x K
- Economic profit – income that remains after the firms have paid the
factors of production of the owners of the firm
- Real economic profit = Y – (MPL x L) – (MPK x K)
- Y – (MPL x L) – (MPK x K) + Economic profit
o Total income is divided among the return to labour, the return to
capital and economic profit
- If production function has property of constant returns to scale, then
economic profit must be zero
o Nothing is left after the FoP are paid
- Euler’s theorem page 59
- If each FoP is paid at its marginal product, then the sum of these
factor payments equals total output
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Document Summary
Real rental price of capital = rental price measured in units of goods rather than in dollars. Firm demands each fop until that factor"s marginal product falls to equal its real factor price. If all firms in economy are competitive and profit-maximizing, then each fop is paid its marginal contribution to the production process. Real wage paid to each worker = mpl and real rental price paid to each owner equals mpk. Total real wages paid to labour are mpl x l and the total real rent return paid to capital owners is mpk x k. Economic profit income that remains after the firms have paid the factors of production of the owners of the firm. Real economic profit = y (mpl x l) (mpk x k) Y (mpl x l) (mpk x k) + economic profit: total income is divided among the return to labour, the return to capital and economic profit.
