ECON 201 Lecture Notes - Lecture 24: Monopsony, Marginal Product, Opportunity Cost
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ECON 201 – Lecture 24 – Chapter 18
*All charts and graphs based off or replicated by Joel Han in class unless stated otherwise
The Circular flow of the Economy
Factors of Production
oFactors of production are resources used in the production of goods and services
Land, labor, capital (machinery)
oDemand for factors of production is derived demand
Derived from the firm’s decision to produce and supply a good
Factor Demand: Two assumptions
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oAll markets are competitive: the firm is a price-taker
Product Market; Factor market
oThe firm is profit-maximizing
Monopsony – A monopoly from the buyers side
Example: Farm Production
oShort-run: land is fixed, labor is the only variable factor
L (# of workers) Q (Bushels of Wheat)
0 0
1 1000
2 1800
3 2400
4 2800
5 3000
Value of Marginal Product
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3
oWhat is the cost of hiring another worker?
The wage that has to be paid to that worker
oWhat is the value of hiring another worker?
How much does the extra worker add to output?
MPL = ∆Q/∆L
How much is this extra output worth?
VMPL = PWheat * MPL
oVMPL - How much the extra output can be sold for
oMPL - The extra output
Computing VMPL
oThe price in the (competitive) wheat market is $6 a bushel
L (# of workers) Q (Bushels of Wheat) MPL = ∆Q/∆L VMPL = PWheat * MPL
0 0 - -
1 1000 1000
(1/1000)
5000
(5*1000)
2 1800 800
(1/800)
4000
(5*800)
3 2400 600 3000
4 2800 400 2000
5 3000 200 1000
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Document Summary
Econ 201 lecture 24 chapter 18. *all charts and graphs based off or replicated by joel han in class unless stated otherwise. Factors of production: factors of production are resources used in the production of goods and services. Land, labor, capital (machinery: demand for factors of production is derived demand. Derived from the firm"s decision to produce and supply a good. 2: all markets are competitive: the firm is a price-taker. Product market; factor market: the firm is profit-maximizing. Monopsony a monopoly from the buyers side. Example: farm production: short-run: land is fixed, labor is the only variable factor. L (# of workers) q (bushels of wheat) Vmpl = pwheat * mpl: vmpl - how much the extra output can be sold for, mpl - the extra output. Computing vmpl: the price in the (competitive) wheat market is a bushel. L (# of workers) q (bushels of wheat) mpl = q/ l. 4: vmpl decreasing because diminishing marginal product.
