Textbook Notes (368,802)
Canada (162,170)
Economics (748)
ECON 1B03 (303)
Chapter 18

Chapter 18

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Usman Hannan

CHAPTER 18: THE MARKETS FACTORS OF PRODUCTION - factors of production: the inputs used to produce goods and services (i.e. labour, land, capital) - the demand for a factor of production is a derived demand (decision to supply another good) - labour is the most important factor, as workers receive most of the economic income in Canada The Demand for Labour The Competitive, Profit-Maximizing Firm - assume firm is competitive in the market for apples (seller) and in the market for apple pickers (buyer) - profit-maximizing, only cares about profit = TR – TC The Production Function and the Marginal Product of Labour - production function: the relationship between the quantities of input used to make a good and the quantity of output of that good (where input is # of workers) - marginal product of labour: the increase in the amount of output from an additional unit of labour - diminishing marginal product: the property whereby the marginal product of an input declines as the quantity of the input increases The Value of the Marginal Product and the Demand for Labour - profit of an additional worker = workers contribution to revenue - worker’s wage - to find the workers contribution, convert the marginal product of labour into the value of marginal product by multiplying by price - value of the marginal product: marginal product of input x price - to maximize profit, firm hires amount of workers where the market wage and value of MP cross - the value of marginal product curve is the labour demand curve for a competitive profit-max firm What Causes the Labour Demand Curve to Shift? The Output Price - an increase in the price results in an increase in the value of the marginal produc
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