ECO101H1 Study Guide - Final Guide: Wvmp, Perfect Competition, Marginal Revenue
elizabethkandelaki and 40134 others unlocked
98
ECO101H1 Full Course Notes
Verified Note
98 documents
Document Summary
Topic 12 markets for factors of production (jan 10th) Outline: the factors of production, derived demand for labor: an example; Demand for labor = mrp of labor. P=mc & w=vmp: interdependence of product and factor markets, workers are paid their mrp/vmp. Insight: demand for factors is a derived demand: (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; - firm will not hire a worker unless his vmp is at least equal to the wage rate; e. g. if w=, firm will not hire the 3rd worker since this worker is paid only to contribute . - therefore since w=, the firm will hire three workers: profit-maximizing behavior of competitive firm; Vmp schedule = demand for labor schedule: demand for labor = mrp/vmp of labor;