is a collection of the four resources which are essential for production, also known as the factors of production (land, labour, capital entrepreneurs)
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Derived demand
relates both the factor market and the product.
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**The Marginal Revenue Product (MRP**)
when extra input is employed (labor), it increases a firm’s revenue subsequently, which is what MRP is
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T**he Marginal Factor Cost (MFC)**
also known as the marginal resource cost or MRC, which is the downside of employing additional labour as it will lead to loss of revenue.
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**The least cost rule**
states that in an effort to minimise costs, firms will adjust or shift the ratio of inputs until capital is equal to labour.
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**Monopsony**
is when only one buyer of a good or service exists, meaning that the buyer is capable of setting the price.
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**Factors**
These are able to shift the demand and supply for specific resources. A decrease in labour costs will decrease the demand for workers in other sections.
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**Changes in the Product Demanded**
an increase in the price of a product increases the resources used in production and the MRP.
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Determinants of resource demand
Changes in the Product Demanded, Changes in Productivity, Changes in the prices of other resources
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**Changes in Productivity**
An increase in productivity is able to make a firm more profitable. It also provides the firm with a chance to employ more resources (labour) and make use of the increased productivity.
firms would opt to use the less costly method of production, especially when there are substitute resources, as it causes a downward shift of the MRP
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**Complementary resources**
as the price of a resources decreases (example: a resource to build houses), more output will be produced (example: houses). This increases demand for resources related to that output (example: construction workers).
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Perfectly Competitive Labour Market
This market consists of many firms who hire workers with similar skills and abilities. These firms are wage takers, instead of price makers.
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**wage takers**
hire a percentage of people to do their labour, which has little influence on the market wage. They must be open to pay their workers a market determined wage rate.
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minimum wage
which is effective has a direct effect on the labor market and individual firms. If a price floor for minimum wage is set, the wage will decrease, however, this will lead to a decrease in the quantity hired for workers in the labor market.
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Monopsony
Only has one sole buyer of this labor
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__law of diminishing returns__
The idea behind this is that as firms use a lot of one resource, the productivity of the input decreases. The firm will be in need of more labor and will opt to hire more labor as its use of capital decreases.
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The MCL (marginal cost of labor) curve
increases at a faster rate than the supply curve since a monopsony is not able to discriminate in wages.
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Minimum wage graph represents
we can see that as the quantity of labor increases, minimum wage decreases. The same applies for an increase in minimum wage, which decreases labor supplied.
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