ECON 2304 Lecture Notes - Lecture 25: Market Power, Perfect Competition, Production Function
1 Feb 2017
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Chapter 18: The Markets for the Factors of Production
In this chapter, look for the answers to these questions
ā What determines a competitive firmās demand for labor?
ā How does labor supply depend on the wage? What other factors affect labor supply?
ā How do various events affect the equilibrium wage and employment of labor?
ā How are the equilibrium prices and quantities of other inputs determined?
Factors of Production and Factor Markets
ā Factors of production: the inputs used to produce goods and services
ā Labor
ā Land
ā Capital: the equipment and structures used to produce goods and services
ā Prices and quantities of these inputs are determined by supply & demand in factor
markets.
Derived Demand
ā Markets for the factors of production are like markets for goods & services, except:
ā Demand for a factor of production is a derived demand -- derived from a firmās decision
to supply a good in another market
Two Assumptions
1.) All markets are competitive
The typical firm is a price taker
ā in the market for the product it produces
ā in the labor market
2.) Firms care only about maximizing profits
ā Each firmās supply of output and demand for inputs are derived from this goal.
Our Example: Farmer Jack
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Chapter 18: the markets for the factors of production. In this chapter, look for the answers to these questions. Factors of production: the inputs used to produce goods and services. 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. Markets for the factors of production are like markets for goods & services, except: Demand for a factor of production is a derived demand -- derived from a firm"s decision to supply a good in another market. The typical firm is a price taker in the market for the product it produces in the labor market. Each firm"s supply of output and demand for inputs are derived from this goal. 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:
