factors of production

Factors of Production

The inputs used to produce goods and services, particularly labor, land, and capital.

Demand for Labor

The derived demand for labor based on the firm's decision to supply output in another market.

Production Function

Shows the relationship between the quantity of inputs used to make a good and the quantity of output.

Marginal Product of Labor

The increase in output from an additional unit of labor, holding all other inputs fixed.

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

The marginal product of labor multiplied by the price of the output; also known as marginal revenue product.

Labor Demand Curve

The value-of-marginal-product curve representing the demand for labor in a competitive, profit-maximizing firm.

Equilibrium Wage

The wage that balances the supply and demand for labor.

Monopsony

A market with only a single buyer, which can influence labor wages and employment levels.

Capital

The stock of equipment and structures used to produce goods and services.

Rental Price of a Factor

The price one pays to use a factor for a limited period of time.

Retained Earnings

The portion of capital income retained by firms to buy more capital.

Neoclassical Theory of Distribution

The theory that a factor's earnings depend on supply and demand, and the factor's demand depends on its marginal productivity.