ECO101H1 Lecture 22: Lecture 22-Markets for Factors of Production

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copperclam445

1 Aug 2010

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Thursday, January 7th, 2010.

Markets for Factors of Productions

Full-Time Earnings (Year 2007 Dollars)

Physicians (GPs): $140,832

Registered Nurses: $ 53,354

High School Teachers: $ 57,480

Actors: $ 41,694

Cooks: $ 24,353

1. What is economics explanation?

(Answer: Value of Marginal Product)

2. How good is economics explanation?

(Answer: Pretty Good)

Factors of Production

x Labour

x Capital (equipment, structures)

x Land

Insights

1. Demand for factor is a derived demand

2. Price of factor is determined by demand and supply

Example:

FIRM PRODUCES WIDGETS (Perfect Competition)

1. Labour is variable factor (principle of diminishing marginal product applies)

2. Price of widget: $5

3. Wage rate: $150 per day

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$ 24,353: what is economics explanation? (answer: value of marginal product, how good is economics explanation? (answer: pretty good) Insights: demand for factor is a derived demand, price of factor is determined by demand and supply. Firm produces widgets (perfect competition: labour is variable factor (principle of diminishing marginal product applies, price of widget: , wage rate: per day www. notesolution. com. Marginal product vale of marginal product (tp/l) (p * mp) Vmp slopes downward due to diminishing marginal product of labour. Maximizing profits: firms hires workers until vmp = w. If n = 2, vmp > w => hire more workers. If n = 4, vmp < w => hire fewer workers. If n = 3, vmp = w => profits are maximized: vmp = w and p = mc are equivalent. Note: at n = 3, mp = 30 and. W/mp = 150/30 = 5 = mc = p: vmp schedule = demand for labour schedule.

Related Questions

According to the law of diminishing marginal returns:

A. The marginal product falls as more units of a variable factor are added to a fixed factor.

B. Marginal utility falls as more units of a product are consumed.

C. The total product falls as more units of a variable factor are added to a fixed factor.

D. The marginal product increases as more units of a variable factor are added to a fixed factor.

lavenderbear534

22) The law of diminishing marginal returns states: A) As the size of a firm's plant increases, average cost eventually decreases. B) As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes. C) As the size of a plant increases, marginal product eventually decreases. D) As a firm uses more of a variable factor or production, total product eventually decreases. E) As a firm uses more of a variable factor of production, its average cost eventually decreases.

12) The law of diminishing marginal returns states: A) As the size of a firm's plant increases, average cost eventually decreases. B) As a firm uses more of a variable factor of production, its average cost eventually decreases. As the size of a plant increases, marginal product eventually decreases. D) As a firm uses more of a variable factor or production, total product eventually decreases. E) As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.

ECO101H1 Lecture 22: Lecture 22-Markets for Factors of Production

ECO101H1 Full Course Notes

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