Unit 5 - Factor Markets Guide
[[5.1 - Introduction to Factor Markets[[
@@Factor markets@@: is a resource for companies to buy what the need to produce their goods and services
Derived demand : the demand from a resource is derived by product demand
Marginal revenue product (MRP) : the additional revenue that is generated by an additional resource/worker
Marginal factor cost (MFC) : the additional cost of an additional resource/worker
Least cost rule : marginal product of labor/price of labor = marginal product of capital/price of capital (MPL/PL=MPK/PK)
- Buy more of the one with a higher sum, and less of the one with a smaller sum (to explain, as you increase, diminishing marginal returns kicks in)
[[5.2 - Changes in Factor Demand and Factor Supply[[
| ^^Determinants of Labor Demands (DL)^^ | ^^Determinants of Labor Supply (SL)^^ |
|---|---|
| R.O.D | P.I.N |
| 1. Productivity of the Resource | 1. Personal values |
| 2. Price of Other resources | 2. Intervention by Government |
| 3. Product demand | 3. Number of Qualified workers |
- These factors determine the supply and demand of these quantities
[[5.3 - Profit-Maximising Behaviour in Perfectly Competitive Factor Markets[[
Market curve : standard supply and demand curve
Equilibrium wage in the market : establishes the wage that firms will pay workers
MRP=MRC!!!!
Firms will not hire if MRC>MRP, as they will be at a loss
[[5.3 - Monopsonistic Markets[[
Many sellers, one buyer
Monopsonies pay a lower wage and hire less than perfect competition
- This market is an example of Imperfect competition
MRP=MFC
MFC > supply
