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University of Hawai‘i at Mānoa Department of Economics

University of Hawai‘i at Mānoa Department of Economics. ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lectures #27 & 28 Tuesday, April 20, 2004 and Thursday, April 22, 2004. ANNOUNCEMENTS. LAST LECTURE

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University of Hawai‘i at Mānoa Department of Economics

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  1. University of Hawai‘i at MānoaDepartment of Economics ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lectures #27 & 28 Tuesday, April 20, 2004 and Thursday, April 22, 2004

  2. ANNOUNCEMENTS • LAST LECTURE • Tuesday, May 4, 2004, 12:00-1:15 PM, BIL 152 • Review Session • Thursday, May 6, 4:30-5:30 PM, BIL 152 • FINAL EXAMINATION • Thursday, May 13, 2004, 12:00-2:00 PM, BIL 152

  3. Lectures 27 & 28 • Introduction to Factor (Input) Markets • Competitive Output Market/Competitive Input Market • Monopolistic Output Market/Competitive Input Market • Competitive Output Market/Monopsonistic Input Market • Monopolistic Output Market/Monopsonistic Input Market

  4. Labor Markets • Production Theory • Total Product • Average Product • Marginal Product • Labor Demand • Marginal Revenue Product (MRP) • Value of the Marginal Product (VMP)

  5. Marginal Revenue Product (MRP) • Marginal Revenue Product of Labor equals the Marginal Revenue times the Marginal Product of Labor • MRPL= MR*MPL • Units of Measure: $/L = ($/Q)*(Q/L)

  6. Value of the Marginal Product (VMP) • The Value of the Marginal Product of Labor equals the output Price times the Marginal Product of Labor • VMPL= P*MPL • Units of Measure: $/L = ($/Q)*(Q/L) • For a competitive firm P=MR, therefore MR*MP=MRP=VMP=P*MP • For a monopolistic firm P>MR, therefore P*MP=VMP>MRP=MR*MP

  7. FACTOR COST • Marginal Factor Cost (MFC) • Average Factor Cost (AFC) • Under a rule of one price (wage), the wage rate, W, equals the average factor cost, AFC • W=AFC

  8. Competitive Input Market/Competitive Output Market Competitive Firm Labor Market $/L $/L SL W=AFC=MFC=MRP=VMP W MRP=VMP DL 0 0 L L* L

  9. Competitive Input Market/Monopolistic Output Market Monopolistic Firm Labor Market $/L $/L SL W=AFC=MFC=MRP<VMP VMPL W DL MRPL 0 0 L L* L

  10. Competitive Input Market/Monopolistic Output Market Welfare Effects Monopolistic Firm Labor Market Welfare Loss Due to Monopoly $/L $/L SL VMPL W DL MRPL 0 0 L LM LC L

  11. The welfare effects of monopoly can be viewed from either the output market or input market. Monopolistic Firm: Input Decision Monopolistic Firm: Output Decision Welfare Loss Due to Monopoly Welfare Loss Due to Monopoly $/Q $/L MC VMPL W D MRPL 0 0 QC L LM LC QM Q MR

  12. Competitive Output Market/MONOPSONY $/L W=AFC<MFC=MRP=VMP MFCL SL: AFCL Welfare Loss W* MRPL=VMPL 0 L* L

  13. Monopolistic Output Market/MONOPSONY $/L W=AFC<MFC=MRP<VMP MFCL SL: AFCL Welfare Loss VMPL W* MRPL 0 L* L

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