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1、Chapter 14 Markets for Factor Inputs Chapter 14 Slide 2 Topics to be Discussed Competitive Factor Markets Equilibrium in a Competitive Factor Market Factor Markets with Monopsony Power Factor Markets with Monopoly Power Chapter 14 Slide 3 Competitive Factor Markets Characteristics 1) Large number of
2、 sellers of the factor of production 2) Large number of buyers of the factor of production 3) The buyers and sellers of the factor of production are price takers Chapter 14 Slide 4 Competitive Factor Markets Demand for a Factor Input When Only One Input Is Variable Demand for factor inputs is a deri
3、ved demand derived from factor cost and output demand Chapter 14 Slide 5 Competitive Factor Markets Assume Two inputs: Capital (K) and Labor (L) Cost of K is r and the cost of labor is w K is fixed and L is variable Demand for a Factor Input When Only One Input Is Variable Chapter 14 Slide 6 Competi
4、tive Factor Markets Problem How much labor to hire Demand for a Factor Input When Only One Input Is Variable Chapter 14 Slide 7 Competitive Factor Markets Measuring the Value of a Workers Output Marginal Revenue Product of Labor (MRPL) MRPL = (MPL)(MR) Demand for a Factor Input When Only One Input I
5、s Variable Chapter 14 Slide 8 Competitive Factor Markets Assume perfect competition in the product market Then MR = P Demand for a Factor Input When Only One Input Is Variable Chapter 14 Slide 9 Competitive Factor Markets Question What will happen to the value of MRPL when more workers are hired? De
6、mand for a Factor Input When Only One Input Is Variable Chapter 14 Slide 10 Marginal Revenue Product Hours of Work Wages ($ per hour) MRPL = MPLx P Competitive Output Market (P = MR) MRPL = MPL x MR Monopolistic Output Market (P w (the marginal cost of hiring a worker): hire the worker If MRPL w: hi
7、re less labor If MRPL = w: profit maximizing amount of labor Demand for a Factor Input When Only One Input Is Variable Chapter 14 Slide 12 w* SL In a competitive labor market, a firm faces a perfectly elastic supply of labor and can hire as many workers as it wants at w*. Hiring by a Firm in the Lab
8、or Market (with Capital Fixed) Quantity of Labor Price of Labor Why not hire fewer or more workers than L*. MRPL = DL L* The profit maximizing firm will hire L* units of labor at the point where the marginal revenue product of labor is equal to the wage rate. Chapter 14 Slide 13 Competitive Factor M
9、arkets If the market supply of labor increased relative to demand (baby boomers or female entry), a surplus of labor would exist and the wage rate would fall. Question How would this impact the quantity demanded for labor? Demand for a Factor Input When Only One Input Is Variable Chapter 14 Slide 14
10、 A Shift in the Supply of Labor Quantity of Labor Price of Labor w1 S1 MRPL = DL L1 w2 L2 S2 Chapter 14 Slide 15 Competitive Factor Markets Comparing Input and Output Markets production of MC MP MP MR MR)(MP MRP workersofnumber maximizingprofit at and MR)(MP(MRP L L L L LL w w w w Chapter 14 Slide 1
11、6 Competitive Factor Markets Comparing Input and Output Markets In both markets, input and output choices occur where MR = MC MR from the sale of the output MC from the purchase of the input Chapter 14 Slide 17 Competitive Factor Markets Scenario Producing farm equipment with two variable inputs: La
12、bor Assembly-line machinery Assume the wage rate falls Demand for a Factor Input When Several Inputs Are Variable Chapter 14 Slide 18 Competitive Factor Markets Question How will the decrease in the wage rate impact the demand for labor? Demand for a Factor Input When Several Inputs Are Variable Cha
13、pter 14 Slide 19 MRPL1 MRPL2 When two or more inputs are variable, a firms demand for one input depends on the marginal revenue product of both inputs. Firms Demand Curve for Labor (with Variable Capital) Hours of Work Wages ($ per hour) 0 5 10 15 20 40 80 120 160 When the wage rate is $20, A repres
14、ents one point on the firms demand for labor curve. When the wage rate falls to $15, the MRP curve shifts, generating a new point C on the firms demand for labor curve. Thus A and C are on the demand for labor curve, but B is not. DL A B C Chapter 14 Slide 20 Assume that all firms respond to a lower
15、 wage All firms would hire more workers. Market supply would increase. The market price will fall. The quantity demanded for labor by the firm will be smaller. Competitive Factor Markets Industry Demand for Labor MRPL1 The Industry Demand for Labor Labor (worker-hours) Labor (worker-hours) Wage ($ p
16、er hour) Wage ($ per hour) 0 5 10 15 0 5 10 15 50 100 150 L0 L2 DL1 Horizontal sum if product price unchanged 120 MRPL2 L1 Industry Demand Curve DL2 Firm Industry Chapter 14 Slide 22 The Industry Demand for Labor Question How would a change to a non-competitive market impact the derivation of the market demand for labor? Chapter 14 Slide 23 The Demand for Jet Fuel Observations Jet fuel is a factor (input) cost Cost of je
