BAB 12. PASAR INPUT. Topics to be Discussed. Competitive Factor Markets Equilibrium in a Competitive Factor Market Factor Markets with Monopsony Power Factor Markets with Monopoly Power. Competitive Factor Markets. Characteristics 1)Large number of sellers of the factor of production
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
1)Large number of sellers of the factor of production
2)Large number of buyers of the factor of production
3)The buyers and sellers of the factor of production are price takers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
Assume
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Competitive Output Market (P = MR)
MRPL = MPLxP
Monopolistic
Output Market
(P < MR)
MRPL = MPL x MR
Wages
($ per
hour)
Hours of Work
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
In a competitive labor market, a
firm faces a perfectly elastic supply of labor
and can hire as many workers as it wants at w*.
The profit maximizing firm will
hire L* units of labor at the point
where the marginal revenue product
of labor is equal to the wage rate.
w*
SL
MRPL = DL
L*
Price of
Labor
Why not hire fewer
or more workers than L*.
Quantity of Labor
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Only One Input Is Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
S1
w1
w2
S2
MRPL = DL
L1
L2
Price of
Labor
Quantity of Labor
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Several Inputs Are Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Demand for a Factor Input When
Several Inputs Are Variable
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
When two or more inputs are
variable, a firm’s demand for one input
depends on the marginal revenue
product of both inputs.
When the wage rate is $20, A
represents one point on the firm’s
demand for labor curve.
When the wage rate falls to $15, the
MRP curve shifts, generating a new
point C on the firm’s demand for
labor curve. Thus A and C are
on the demand for labor curve, but
B is not.
A
C
B
DL
MRPL1
MRPL2
Wages
($ per
hour)
20
15
10
5
0
40
80
120
160
Hours of Work
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Industry Demand for Labor
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Horizontal sum if
product price
unchanged
Industry
Demand
Curve
MRPL2
MRPL1
DL1
DL2
120
L1
L2
Firm
Industry
Wage
($ per
hour)
Wage
($ per
hour)
15
15
10
10
5
5
0
50
100
150
0
L0
Labor
(worker-hours)
Labor
(worker-hours)
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
American-.06Delta-.15
Continental-.09TWA-.10
Northwest-.07United-.10
AirlineElasticityAirlineElasticity
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
MRPSR
MRPLR
Price
Quantity of Jet Fuel
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Observations
1) The firm is a price taker at $10.
2) S = AE = ME = $10
3) ME = MRP @ 50 units
Market Supply
of fabric
S
Supply of
Fabric Facing Firm
Market Demand
for fabric
10
10
ME = AE
MRP
D
Demand
for Fabric
100
50
Price
($ per
yard)
Price
($ per
yard)
Yards of
Fabric (thousands)
Yards of
Fabric (thousands)
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Supply of Labor
Income Effect >
Substitution Effect
Income Effect <
Substitution Effect
Wage
($ per
hour)
Hours of Work per Day
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
480
w = $20
Suppose wages increase to $20
P
Increase wage to $20 worker chooses:
20 hour leisure, 4 hours work
income = $80
w = $10
C
A
B
Q
12
16
20
Substitution effect
Income effect
Income
($ per
day)
240
0
8
24
Hours of Leisure
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Head’s HoursSpouse’s HoursHead’s Hours
with Respect towith Respect towith Respect to
GroupHead’s WageSpouse’s WageSpouse’s Wage
Unmarried males.026(no children)Unmarried females.106(with children)Unmarried females.011(no children)One-earner family-.078(with children)One-earner family.007(no children)Two-earner family-.002-.086-.004(with children)Two-earner family-.107-.028-.059(no children)
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
SL = AE
SL = AE
vM
wM
B
A
wC
P * MPL
DL = MRPL
DL = MRPL
LC
LM
Wage
Wage
Competitive Output Market
Monopolistic Output Market
Number of Workers
Number of Workers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Equilibrium in a Competitive Output Market
DL(MRPL) = SL
wC = MRPL
MRPL = (P)(MPL)
Markets are efficient
Equilibrium in a Monopolistic Output Market
MR < P
MRP = (MR)(MPL)
Hire LMat wage wM
vM = marginal benefit to consumers
wM = marginal cost to the firm
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Equilibrium in a Competitive Output Market
DL(MRPL) = SL
wC = MRPL
MRPL = (P)(MPL)
Markets are efficient
Equilibrium in a Monopolistic Output Market
Profits maximized
Using less than the efficient level of input
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
SL = AE
A
Total expenditure (wage) paid
is 0w* x AL*
w*
Economic Rent
DL = MRPL
B
Economic rent is ABW*
L*
The economic rent associated with the
employment of labor is the excess of wages
paid above the minimum amount needed
to hire workers.
Wage
0
Number of Workers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Supply of Land
s2
Economic
Rent
s1
Economic
Rent
D2
D1
Price
($ per
acre)
Number of Acres
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
SL
w*
w0
Shortage
DL = MRPL
Wage
Number of Skilled Workers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Why is marginal expenditure
greater than SL?
Marginal
Expenditure (ME)
SL = Average
Expenditure (AE)
C
wc
w* = 13
D = MRPL
Lc
L*
Price
(per unit
of input)
20
15
10
5
0
1
2
3
4
5
6
Units of Input
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
When a labor union is a monopolist, it
chooses among points on the buyer’s
demand for labor curve.
The seller can maximize the number of workers
hired, at L*, by agreeing that workers will
work at wage w*.
SL
A
w*
DL
MR
L*
Wage
per
worker
Number of Workers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
The quantity of labor L1 that maximizes
the rent that employees earn is determined
by the intersection of the marginal revenue
and supply or labor curves; union members
receive a wage rate of w1.
Finally, if the union wishes to maximize total
wages paid to workers, it should allow L2
union members to be employed at a wage
rate of w2 because the marginal revenue
to the union will then be zero.
w1
w2
Economic
Rent
L1
L2
Wage
per
worker
SL
A
w*
DL
MR
L*
Number of Workers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
SL
When a monopolistic union
raises the wage rate in the
unionized sector of the
economy from w* to wU,
employment in that
sector falls.
wU
For the total supply of labor to
remain unchanged, the wage in
the nonunionized sector
must fall from w* to wNU..
w*
wNU
DNU
DU
DL
Wage
per
worker
Number of Workers
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
ME
SL = AE
19
wC
Wage
Possibilities
DL = MRPL
MR
25
Wage
per
worker
25
20
15
10
5
Number
of Workers
10
20
40
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
Observations
Hiring without union monopoly power
MRP = ME at 20 workers and w = $10/hr
Union’s objective
MR = MC at 25 workers and w = $19/hr
Wage
per
worker
ME
25
SL = (AE)
20
19
wC
15
DL = MRPL
10
MR
5
Number
of Workers
10
20
25
40
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]
nuhfil hanani : web site : www.nuhfil.com, email : [email protected]