ECON 2010 Lecture Notes - Lecture 35: Farmer Jack, Market Power, Perfect Competition
21 Nov 2018
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18 the markets for the factors of production. Factors of production and factor markets: factors of production: Inputs used to produce goods and services: land, labor, capital: the equipment and structures used to produce goods and services, prices and quantities of these inputs are determined by supply & demand in factor markets. Two assumptions: all markets are competitive, the typical firm is a price taker in the market for the product it produces. In the labor market: firms care only about maximizing profits, each firm"s supply of output and demand for inputs are derived from this goal. Example: farmer jack sells wheat in a perfectly competitive market, he hires workers in a perfectly competitive labor market, when deciding how many workers to hire, farmer jack maximizes profits by thinking at the margin: Slope of the production function shows us the marginal product of labor. Vmpl curve is downward sloping due to the diminishing.
