UNIT 4

Chapter 12

12.1-1 Deriving the Factor Demand Curve

Outline:
- A firm's demand for a resource like labor is a derived demand. It is derived from the demand for the product that the resource produces
- The profit maximizing rule says that a firm hires labor up to the point at which MRP = MRC (or MRP = W in competitive labor markets)
to maximize profits, a firm will keep hiring workers until the last worker adds just enough revenue to the firm to cover the cost of that worker
the demand for labor (by businesses) is a derived demand, that means it resutls from the demand for the products that the labor produces
- MRP = change in TR / change in quantity of labor
- MRP = the extra revenue that the firm gets when it hires one more worker
- MRP = the MB to the firm of hiring another worker
- MRP = MR x MP
  - MR = extra output of produding one more unit of output
  - MP = extra output from hirirng one more worker
  - for purely competitive prodict market: MRP = P x MP = VMP = value of the marginal product
- ME:
  - this is just benefit-cost analysis
  - they hire all workers where the MB > MC, up to where the MB = MC
  - But, how do we measure the MB of another worker and the MC of another worker?
MRP
- marginal revenue product
- the MB that a firm gets when it hires another worker
- Definition: the increase in the form's total revenue derived from hiring one additional worker (or any other variable input
- Formula: MRP = change in TR / change in quantity of labor
VMP
- VMP is the Value of the Marginal Output
- VMP is the value (P) of the extra output produce by adding one more worker (MP)
- VMP = the price of the output times the extra output produced by the last unit of labor hired
- P x MP is called the VMP
if the firm is perfectly competitive then MRP = VMP
- MRP = MR x MP
- but in pure competition we know that MR = P
- so for firm's selling their product in a perfectly competitve market: MRP = P x MP
- VMP = value of the marginal product = P x MP
- VMP = MRP (for firms in purely competitive product markets only)
What is the profit maximizing quantity of labor to hire if the firm is purely competitive in the short run?
- ME:
  - we need to know the extra benefits of hiring one more worker and the extra costs of hiring one more worker
  - then we hire up to the point that MB=MC
  - MB of hiring one more worker is the MRP or the amount that TR increase when we add one more worker
  - MC of hring one more worker
    - is the MRC
    - margnal resource cost
    - MRC = change in TC / change in quantity of labor
  - so we will maximize profits if we keep hiring as long as the worker adds more to our revenue (MRP) than it does to our costs (MRC)
  - profit maximizing rule: MRP = MRC
- Given:
  - P of TVs = $100
  - and the table below
  - what is the profit maximizing Q of labor to hire?
  - i.e. where does MRP = MRC, or in purely competitive product markets, where does VMP = W or MRP = W
  - hire as long as the VMP is > wage you have to pay up to where VMP = W
  - hire L* number of workers
  - thr VMP curve then is the derived demand curve ofr labor
  - it is also the MRP curve; in purely competitive product markets VMP = MRP
  - So: the demand for labor is the MRP curve
  - New rule for maximizing profits in purely competitive product markets: W = VMP or W = MRP
New rule for maximizing profits in purely competitive product markets: W = VMP or W = MRP
- this is really the same as MR = MC

Chapter 13

12.3-1 The Supply of Labor - The Determination of Wages - Analyzing the Labor Market

Outline:
- Demand for Labor = MRP
- Supply of Labor
- Equilibrium in the Labor Market

Economics: The Labor Market 2:37 http://www.mindbites.com/lesson/7600

Labor Market Power and Marginal Factor Cost ($1.98 at: http://www.mindbites.com)

A Firm's Marginal Product Revenue Curve (Khan Academy 13:03)

How Many People to Hire Given the MPR Curve (Khan Academy 9:02)

Minimum Wage and Labor Markets ($1.98 at: http://www.mindbites.com)

Economics: Analyzing the Labor Market mindbites

wage determination in imperfect labour markets 4:37 pajholden pajholden·

ACDCLeadership

Micro Unit 5 Intro- Resource Markets 1:23
http://www.youtube.com/watch?v=Y2Z9r4PKwI8&playnext=1&list=PL50F9C4FD0BE8FE28&feature=results_main

Micro Unit 5: Resource Market Playlist by ACDCLeadership

1. Micro Unit 5 Intro- Resource Markets by ACDCLeadership
http://www.youtube.com/watch?v=Y2Z9r4PKwI8&playnext=1&list=PL9EB9C5438D7264E8&feature=results_main

2. 5.1 Market and Minimum Wage: Econ Concep... by ACDCLeadership

3. 5.2 Perfectly Competitive Labor Market and Firm... by ACDCLeadership

4. 5.3 Comparing Product and Resource Market... by ACDCLeadership

5. 5.4 Resource Market, MRP and MRC: Econ Co... by ACDCLeadership

5.1 Market and Minimum Wage: Econ Concepts in 60 Seconds:- Economics Lesson

5.2 Perfectly Competitive Labor Market and Firm: Econ Concepts in 60 Seconds- 3:27 ACDCLeadership·

Perfectly Competitive Resource Market Profit Maximization 9:53 APECONREVIEWER

Minimum Wage and Price Floors 9:06 by khanacademy http://www.khanacademy.org/video?v=j0c2vmFGbtk

EconProfessorKate

Monopsony Deadweight Loss 0:49

Monopsony Graphically 2:00