Introduction to Production Function and the Markets of Factors

These flashcards cover key concepts from the lecture on production functions and labor markets, focusing on derived demand, marginal productivity, and the influences on labor supply and demand.

What are the factors of production?

Labor, Land, and Capital (equipment and structures used to produce goods and services).

What is derived demand in the context of labor?

Demand for a factor of production derived from a firm's decision to offer a good in another market.

What does the production function Q = F(L, R, K) indicate?

It indicates that quantity (Q) produced is a function of labor (L), land (R), and capital (K).

How does a competitive firm decide how many workers to hire?

A competitive firm hires workers until the marginal productivity of labor (MPL) equals the wage paid.

What is marginal productivity of labor (MPL)?

The increase in the quantity produced by each additional unit of labor.

How does the relationship between MPL and the number of workers relate to diminishing marginal productivity?

As more workers are hired, the MPL decreases because each additional worker adds less to production than the last.

What is the Value of Marginal Labor Productivity (VMPL)?

The marginal productivity of labor multiplied by the price of the good produced.

What happens to the labor demand curve if the price of the product increases?

The labor demand curve shifts to the right because the value of marginal productivity (VMPL) increases.

What effect does technological change have on MPL?

Technological change generally increases MPL, causing the demand curve for labor to shift to the right.

What is the equilibrium condition in the labor market?

The wage adjusts until the labor supply equals labor demand, where VMPL equals the wage (W).