markets for factors of production n.
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Markets for Factors of Production. Factors of Production. Inputs used to produce goods & services Different from markets for goods & services in that it is a derived demand – its demand is derived from its decision to supply a good in another market. Demand for Labor.

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Presentation Transcript
factors of production
Factors of Production
  • Inputs used to produce goods & services
  • Different from markets for goods & services in that it is a derived demand – its demand is derived from its decision to supply a good in another market
demand for labor
Demand for Labor
  • Households are suppliers while firms are the demanders
  • Wage earned by workers is determined by the supply & demand for workers
competitive profit maximizing firm
Competitive Profit-Maximizing Firm
  • Assume firm is competitive in the market for its good/service and in the market for workers that produce the good/service
  • Also, assume the firm is profit maximizing (TR – TC)
production function marginal product of labor
Production Function & Marginal Product of Labor
  • How does the number of workers hired impact the amount of output we can produce?
  • Production Function – relationship between quantity of inputs used and the quantity of output produced
  • Marginal Product of Labor – increase in amount of output from hiring one additional worker
diminishing marginal product
Diminishing Marginal Product
  • As the number of workers increases, the marginal product of labor decreases