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Chapter 18

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ECON 200

Microeconomics Chapter 18  Factors of production: the inputs used to produce goods and services.  Competitive profit-maximizing firm  Competitive: in market for apples (seller) and apple pickers (buyer). Price taker.  Decide how many apples to sell and workers to hire  Profit maximizing: wants profit (revenue)  Production function and marginal product of labor  How the size of its workforce affects amount of output produced  Production function: relationship between the quantities of inputs (apple pickers) used to make a good and the quantity of output (apples) of that good.  Marginal product of labor: the increase in the amount of output from an additional unit of labor.  Diminishing marginal product: the property whereby the marginal product of an input declines as the quantity of the input increases.  Value of the marginal product and demand for labor  To find profit from each additional worker: (worker’s contribution to revenue) – (worker’s wage)  Contribution to revenue = (price of apples) X (marginal product of labor)  Value of marginal product: the marginal product of an input times the price of the output.  Diminishes as number of workers hired rises  Firm hires workers up until the (market wage) equals the (value of the marginal product of labor) (labor demand curve)  What causes the labor-demand curve to shift  Output price: value of marginal product = output X price; so when output price changes, it will change the curve.  Technological change: cause increase in outputs of labor, so increase demand for labor shifting curve out. Creation of robots can shift inward because no need for labor  Th
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