5. Market For Factors of Production

时间：2025-03-09

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MicroeconomicsFor Undergraduate Students Shandong University

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Chapter 13 : The Markets for the Factors of ProductionLearning Objectives Explain how firms choose the profit-maximizing quantity of labor to employ. Explain how people choose the quantity of labor to supply. Explain how equilibrium wages are determined in labor markets. Explain how compensating differentials, discrimination, and labor unions cause wages to differ. Discuss the role personnel economics can play in helping firms deal with human resources issues. Show how equilibrium prices are determined in the markets for capital and natural resources. Discuss the distribution of income in the United States and understand the extent of income mobility.2012-2-24 Management School of Shandong University Wang Jun http://www.77cn.com.cn 2

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The Demand for LaborTheory of Income Distribution The theory of income distribution (or distribution theory) studies how incomes are determined in a market economy. Distribution theory is a special case of the theory of prices. (Marshall) The key to incomes lies in the marginal products of different factors of production. (Clark) The fundamental point about distribution theory is that the demands for the various factors of production are derived from the revenues that each factor yields on its marginal product.

2012-2-24

Management School of Shandong University Wang Jun

http://www.77cn.com.cn

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The Demand for LaborDerived demand The demand for a factor of production that is derived from the demand for the good the factor produces.

The Marginal Revenue Product of Labor Marginal product of labor The additional output a firm produces as a result of hiring one more worker. Marginal revenue product of labor (MRP) The change in a firm’s revenue as a result of hiring one more worker.

2012-2-24

Management School of Shandong University Wang Jun

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The Demand for LaborMRP MRP represents the additional revenue a firm earns from using an additional unit of an input, with other inputs held constant. It is calculated as the MP of the input multiplied by the MR obtained from selling an extra unit of output. This holds for labor (L), land (A), and other inputs.

Maginal revenue product of labor MRPL = MR × MPL Maginal revenue product of land MRPA = MR × MPA2012-2-24 Management School of Shandong University Wang Jun http://www.77cn.com.cn 5

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The Demand for LaborStart from

TR = TR (Q ) Q = Q (L )

∴TR = TR[Q(L )]

dTR dTR dQ = dL dQ dL that is MRP = MR MP2012-2-24 Management School of Shandong University Wang Jun http://www.77cn.com.cn 6

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The Demand for LaborMFC

dTC dTC dQ MFC = = = MC MP dF dQ dFEquilibrium in Factor Market

MRP = MFC

2012-2-24

Management School of Shandong University Wang Jun

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The Demand for LaborStart from π (L ) = TR TC

dπ dTR dTC = dL dL dL dTR dQ dC

dQ = dQ dL dQ dF = MR MP MC MP = MRP MFC = 0

MRP = MFC

2012-2-24

Management School of Shandong University Wang Jun

http://www.77cn.com.cn

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The Demand for Labor

The Marginal Revenue Product of Labor and the Demand for Labor

2012-2-24

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The Demand for LaborThe Marginal Revenue Product of LaborThe Relationship between the Marginal Revenue Product of Labor and the Wage

WHEN … MRP > W, MRP < W, MRP = W,

THEN THE FIRM … should hire more workers to increase profits. should hire fewer workers to increase profits. is hiring the optimal number of workers and is maximizing profits.

2012-2-24

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The Demand for LaborThe Market Demand Curve for Labor The market demand curve for labor is determined by adding up the quantity of labor demanded by each firm at each wage, holding constant all other variables that might affect the willingness of firms to hire workers.

2012-2-24

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The Demand for LaborFactors That Shift the Market Demand Curve for Labor The five most important variables that cause the labor demand curve to shift are the following: Increases in human capital. Human capital The accumulated training and skills that workers possess.

Changes in technology. Changes in the price of the product. Changes in the quantity of other inputs. Changes in the number of firms in the market.

2012-2-24

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The Supply of Labor

The Labor Supply Curve

A Backward-Bending Labor Supply Curve

2012-2-24

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