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December 4, 2013

December 4, 2013. Return Product Market Review Quizzes Begin Unit IV: Factor Markets (Ch. 12 & 13) Notes… HW: Firm’s Demand for Labor Packet and watch Introduction to Factor Market Video and Video #1 on class website under Unit IV- Factor Markets Chapter 12 Quiz: Tuesday, Dec. 10

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December 4, 2013

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  1. December 4, 2013 • Return Product Market Review Quizzes • Begin Unit IV: Factor Markets (Ch. 12 & 13) • Notes… • HW: Firm’s Demand for Labor Packet and watch Introduction to Factor Market Video and Video #1 on class website under Unit IV- Factor Markets • Chapter 12 Quiz: Tuesday, Dec. 10 • Chapter 13 Quiz: Tuesday, Dec. 17 • Unit IV Exam: December 19th and 20th. • Unit IV Vocab Due December 19th.

  2. Factor/Resource Market: Firm is a Seller and a Buyer

  3. Chapter 12: The Demand for Resources

  4. The Demand for Resources • A factor of production is something that is usedto produce some output (called an input) • Examples: buildings, machinery, land, labor, and raw materials • Derived Demand: The demand for an input is derived from the demand for the output that the input helps produce.

  5. Factor Market Terms & Formulas • Marginal Resource Cost (MRC): change in Total Cost that results from employment of an additional worker. • MRC = DTC / DL

  6. MRC in a Perfectly Competitive Labor Market • Each time a firm hires another worker, its cost increases by the price of the labor (PL) • For a firm in a perfectly competitive labor market, MRC = PL (MRC=Wage) • (If a firm is not in a perfectly competitive labor market, this is not true.)

  7. The Supply Curve of Labor to a Firm that is a Perfect Competitor in the Labor Market (Firm is a Wage-Taker) price of labor PL S labor

  8. Factor Market Terms & Formulas • Marginal Physical Product (MPP) or Marginal Product (MP): change in quantity of output that results from employment of an additional worker. • MPP = DQ / DL

  9. Factor Market Terms & Formulas • Marginal Revenue Product (MRP): change in Total Revenue that results from the employment of an additional worker. • MRP = DTR / DL

  10. Rule for Employing Resources • A firm maximizes its total profit by using: • MRP=MRC Rule

  11. Example: A firm sells its shirts in a perfectly competitive product market for $10 each.LQ 0 0 10 70 20 130 30 180 40 220 50 250 60 270 70 280

  12. Example: A firm sells its shirts in a perfectly competitive product market for $10 each.LQMPP=DQ/DL 0 0 --- 10 70 7 20 130 6 30 180 5 40 220 4 50 250 3 60 270 2 70 280 1

  13. Example: A firm sells its shirts in a perfectly competitive product market for $10 each.LQMPP=DQ/DLTR=PQ 0 0 --- 0 10 70 7 700 20 130 6 1300 30 180 5 1800 40 220 4 2200 50 250 3 2500 60 270 2 2700 70 280 1 2800

  14. Example: A firm sells its shirts in a perfectly competitive product market for $10 each.LQMPP=DQ/DLTR=PQMR =DTR/DQ 0 0 --- 0 --- 10 70 7 700 10 20 130 6 1300 10 30 180 5 1800 10 40 220 4 2200 10 50 250 3 2500 10 60 270 2 2700 10 70 280 1 2800 10

  15. Example: A firm sells its shirts in a perfectly competitive product market for $10 each. MRP =DTR/DLLQMPP=DQ/DLTR=PQMR =DTR/DQMRP= MR•MPP 0 0 --- 0 --- --- 10 70 7 700 10 70 20 130 6 1300 10 60 30 180 5 1800 10 50 40 220 4 2200 10 40 50 250 3 2500 10 30 60 270 2 2700 10 20 70 280 1 2800 10 10

  16. Focusing on the first and last columns of the previous table, we have the MRP schedule.LMRP 0 --- 10 70 20 60 30 50 40 40 50 30 60 20 70 10

  17. Plotting points we have a graph of the MRP curve.Demand = MRP Downward sloping due to Diminishing Marginal Productivity MRP 70 60 50 40 30 20 10 MRP labor 0 10 20 30 40 50 60 70

  18. When should you employ more of an input? • MRP > MRC employ more input • MRP < MRC cut back employment • MRP = MRC profit-maximizing employment level

  19. December 5, 2013 • Review Homework Packet: Firm's Demand for Labor Part A • Continue Ch. 12: Imperfect Product Market with Perfect Factor Market and Determinants of Resource Demand • Firm's Demand for Labor Packet (parts B and C)- finish for HW AP Economics Review Session Today

  20. ] ] ] ] ] ] ] ] ] ] ] ] ] ] $18 16 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 -2 MRP as Resource Demand (1) Units of Resource (2) Total Product (Output) (3) Marginal Product (MP) (4) Product Price (5) Total Revenue, (2) X (4) (6) Marginal Revenue Product (MRP) 0 1 2 3 4 5 6 7 0 7 13 18 22 25 27 28 $2 2 2 2 2 2 2 2 $ 0 14 26 36 44 50 54 56 $14 12 10 8 6 4 2 7 6 5 4 3 2 1 Purely Competitive Firm’s Demand for aResource Resource Wage (Wage Rate) D=MRP Quantity of Resource Demanded 12-20 LO1

  21. ] ] ] ] ] ] ] ] ] ] ] ] ] ] $18 16 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 -2 MRP as Resource Demand (1) Units of Resource (2) Total Product (Output) (3) Marginal Product (MP) (4) Product Price (5) Total Revenue, (2) X (4) (6) Marginal Revenue Product (MRP) 0 1 2 3 4 5 6 7 0 7 13 18 22 25 27 28 $2.80 2.60 2.40 2.20 2.00 1.87 1.75 1.65 $ 0.00 18.20 31.20 39.60 44.00 46.25 47.25 46.20 $18.20 13.00 8.40 4.40 2.25 1.00 -1.05 7 6 5 4 3 2 1 Imperfectly Competitive Firm’s Demand for A Resource D=MRP (Pure Competition) Downward sloping at steeper rate due to Diminishing Marginal Productivity And (2) product price drop Resource Wage (Wage Rate) D=MRP (Imperfect Competition) Quantity of Resource Demanded 12-21 LO1

  22. Determinants of Resource Demand • Changes in product demand • Changes in productivity • Quantities of other resources • Technological advance • Quality of the variable resource 12-22 LO2

  23. Determinants of Resource Demand • Changes in the price of substitute resources • Substitution effect • Output effect • Net effect • Changes in the price of complementary resources 12-23 LO2

  24. Determinants of Resource Demand 12-24 LO2

  25. Occupational Employment Trends • Rising employment • Services • Health care • Computers • Declining employment • Labor saving technological change • Textiles 12-25 LO2

  26. Employment Trends 10 Fastest-Growing U.S. Occupations in Percentage Terms, 2008-2018 Employment, Thousands of Jobs Source: Bureau of Labor Statistics, http://www.bls.gov 12-26 LO2

  27. Employment Trends 10 Most Rapidly Declining U.S. Occupations in Percentage Terms, 2008-2018 Employment, Thousands of Jobs 12-27 LO2

  28. Percentage Change in Resource Quantity Erd = Percentage Change in Resource Price Elasticity of Resource Demand • Ease of resource substitutability • Elasticity of product demand • Ratio of resource cost to total cost 12-28 LO2

  29. Optimal Combination of Resources • All resource inputs are variable • Choose the optimal combination • Minimize cost of producing a given output • Maximize profit 12-29 LO3

  30. Marginal Product Of Capital (MPC) Marginal Product Of Labor (MPL) = Price of Capital (PC) Price of Labor (PL) The Least Cost Rule • Minimize cost of producing a given output • Last dollar spent on each resource yields the same marginal product 12-30 LO3

  31. MRPL MRPC = 1 = PL PC Profit Maximizing Rule • MRP of each resource equals its price PL = MRPL PC = MRPC and 12-31 LO3

  32. Income Distribution • Paid according to value of service • Workers • Resource owners • Inequality • Productive resources unequally distributed • Market imperfections 12-32 LO3

  33. Income Distribution • Numerical Illustration • Data for finding the least-cost and profit-maximizing combination of labor and capital 12-33

  34. Input Substitution: The Case of ATMs • Banks use ATMs instead of people • Least-cost combination of resources • ATMs debuted about 35 years ago • 11 billion U.S. transactions per year • 80,000 tellers eliminated 1990-2000 • Former tellers find new jobs • Customer convenience 12-34 LO3

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