1 / 9

Understanding Competitive Labor and Factor Markets: Key Concepts and Interactions

Explore the dynamics of competitive labor and factor markets in microeconomics. This chapter delves into how firms decide to purchase additional units of labor or inputs based on marginal revenue product (MRP) and marginal factor cost (MFC). Learn about the demand for inputs directly linked to product demand, productivity, and technological enhancements. The role of firms as "wage takers" and the implications of shifting demand curves are also covered. This comprehensive overview equips you with essential insights into market behaviors and decision-making processes.

maida
Télécharger la présentation

Understanding Competitive Labor and Factor Markets: Key Concepts and Interactions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Competitive Labor Markets Factor Markets Part II (Chapter 18)

  2. All of Microeconomicsin one slide: You Buy Something when: Firms produce another unit when: MB ≥ MC MR ≥ MC Firms purchase anotherinput when: MRP ≥ MFC

  3. MR = MC MRP = MFC ----------- ------------- Product Market & Factor Markets MFC MRP Market for OUTPUTS Market for INPUTS

  4. Supply curve MFC MRP Demand & Supply of Factors • MRP is the demand curve for input • MP input X price output • MFC is the supply curve for inputs • Cost of input • Most firms are competitivein the factor market (input market) • So they are “wage takers” in the labor market. • This means a firm has a horizontal supply curve (perfectly elastic) • i.e. price is fixed

  5. D D2 MRP1 MRP2 Demand For product Price of Product MRP MRP = MPL * P Derived Demand for Inputs Product Market Factor Market T-Shirt Market Labor Market Wages/hr Price S -------------- $15 MFC E1 $20 ------------- Q Qty Qty More Workers Hired Wage rate Unchanged!

  6. MRP2 Shifts in Labor Demand Demand Curve shifts right when: • Demand for Product • Productivity • Technology, working conditions, etc... • Price of other resources: • Price ↓ of complementary resource • Price ↓ of substitute resource MRP • “It Depends” • Two different effects when the price of substitute falls: • Substitution Effect- you hire less workers • Output Effect- MC falls, so output increases => you hire more workers

  7. Competitive Labor Market Worksheet

  8. D2 D MRP1 MRP2 Worksheet Review Product Market Factor Market T-Shirt Market Labor Market Wages/day Price S -------------- $10 MFC E1 $200 ------------- Q Qty Qty

  9. D MRP1 Worksheet Review Low Skilled Workers One Firm Wages/day Price S -------------- $10 MFC E1 $10 ------------- Q Qty Qty

More Related