Unit 5: Factor Markets

Factor Market

A marketplace for the services of labor and other factors of production.

Total Revenue

The total amount of money a firm receives from the sale of goods or services.

Total Profit

The total revenue minus total costs.

Marginal Product of Labor

The additional output produced when one more unit of labor is employed.

Marginal Revenue Product

The additional revenue generated by employing one more unit of labor.

Total Cost

The total expense incurred in producing goods or services.

Fixed Cost

Costs that do not change with the level of output.

Variable Cost

Costs that change with the level of output.

Marginal Factor Cost

The cost of hiring one more unit of a factor, such as labor.

Profit Max Point in Factor

The point where marginal revenue product equals marginal factor cost.

Monopsony

A market situation where there is only one buyer for a factor of production.

Derived Demand

Demand for a factor of production that results from the demand for the goods and services produced by that factor.

Increased Derived Demand for Labor

The effect on the labor market when the demand for the products produced by labor increases.

Increased Productivity of All Workers

A rise in the output produced by each worker, affecting labor demand positively.

Wage Rate

The amount paid to a worker per unit of time or per unit of output.

Equilibrium Wage

The wage rate at which the quantity of labor supplied equals the quantity of labor demanded.

Marginal Product of Capital

The additional output produced when one more unit of capital is employed.

Wages Paid by the Firm

The payments made by a firm to workers in exchange for their labor.

Quantity of Labor

The total number of labor units employed by a firm.