MBA Cph - factor markets
Download
Report
Transcript MBA Cph - factor markets
Markets for
Factor Inputs
Markets for factor inputs
In some examination questions, one is
asked to comment on factor market
questions, such as wages
This
is not really covered in any detail in
the textbook, although some major issues
are discussed verbally
To
increase our understanding, let us look
at some relevant models also.
Slide 2
Competitive Factor Markets
Demand for factor inputs is a derived
demand, as demand is derived from factor
cost and output demand
We will look at the simplest case possible,
where factor markets are competitive and
only one factor (labour) is variable and the
other factor (capital) is fixed
How much labour should be hired at the
markets wage rate – w?
Slide 3
Competitive Factor Markets
Demand for a Factor Input When
Only One Input Is Variable
Measuring the Value of a Worker’s
Output
Marginal Revenue Product of Labor
(MRPL)
MRPL = (MPL)(MR)
Slide 4
Competitive Factor Markets
Demand for a Factor Input When
Only One Input Is Variable
Assume perfect competition in the
product market
Then MR = P
Slide 5
Competitive Factor Markets
Demand for a Factor Input When
Only One Input Is Variable
Question
What will happen to the value of MRPL
when more workers are hired?
Slide 6
Marginal Revenue Product
Wages
($ per
hour)
Competitive Output Market (P = MR)
Monopolistic
Output Market
(MR <P)
MRPL = MPLx P
MRPL = MPL x MR
Hours of Work
Slide 7
Competitive Factor Markets
Demand for a Factor Input When
Only One Input Is Variable
Choosing the profit-maximizing amount
of labor
If MRPL > w (the marginal cost of hiring a
worker): hire the worker
If MRPL < w: hire less labor
If MRPL = w: profit maximizing amount of
labor
Slide 8
Hiring by a Firm in the
Labor Market (with Capital Fixed)
Price of
Labor
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
Why not hire fewer
or more workers than L*.
MRPL = DL
L*
Quantity of Labor
Slide 9
Competitive Factor Markets
Demand for a Factor Input When
Only One Input Is Variable
If the market supply of labor increased
relative to demand (baby boomers or
female entry), a surplus of labor would
exist and the wage rate would fall.
Question
How would this impact the quantity
demanded for labor?
Slide 10
A Shift in the Supply of Labor
Price of
Labor
w1
S1
w2
S2
MRPL = DL
L1
L2
Quantity of Labor
Slide 11
Competitive Factor Markets
Comparing Input and Output Markets
MRPL (MPL )(MR)
and at profit maximizing
number of workers MRPL w
(MPL )(MR) w
MR w MPL
w MPL MC of production
Slide 12
Competitive Factor Markets
Comparing Input and Output Markets
In both markets, input and output choices
occur where MR = MC
MR from the sale of the output
MC from the purchase of the input
Slide 13
Labor Market Equilibrium
Wage
Competitive Output Market
Wage
Monopolistic Output Market
SL = AE
SL = AE
wC
vM
wM
A
B
P * MPL
DL = MRPL
LC
Number of Workers
DL = MRPL
LM
Number of Workers
Slide 14
Labor Market Equilibrium
Equilibrium in a
Competitive Output
Market
Equilibrium in a
Monopolistic Output
Market
DL(MRPL) = SL
Profits maximized
wC = MRPL
MRPL = (P)(MPL)
Using less than the
efficient level of input
Markets are efficient
Slide 15
Exam questions
Essay 1, 2001
Slide 16