Resource MarketMr. BarnettAP Microeconomics UHS

Factors of Production Factors of production: the inputs used to

produce goods and services. Labor Land Capital: the equipment and structures used

to produce goods and services.

Prices and quantities of these inputs are determined by supply & demand in factor markets.

Factors of Production Marginal Revenue Product (MRP): is the

additional revenue generated from using 1 more unit of input

Marginal Factor Cost (MFC): is the additional cost incurred by employing one more unit of the inputNote: Similar to the concept of marginal revenue and marginal

cost, which measures the additional benefits and costs of producing another unit of output, we use the concept of marginal revenue product and marginal resource cost which measures the additional revenue and additional cost from using one more input.

Factors of Production - PC Perfectly competitive firm is both a price taker

and a wage taker. Each firm is too small to affect either the price of

output or the price of input (like labor) Thus, Marginal Factor Cost is simply the

wage (w) MFC = W = supply of labor (Sl)

Imperfect Competitive Firm

Monopsony

When only one buyer in the market For labor market,

only one employer Large enough to

affect wage rate Upward sloping

supply curve Higher wage rates,

more supply of labor Wage setter; not

wage-taker

Monopsony To employ one more worker,

the monopsonist must not only pay a higher wage rate to the next worker, but also pay a higher wage to all the workers it could have hired at a lower wage rate

The firm will employ a quantity of labor where the marginal revenue product is equal to the marginal resource cost. 

But the wage rate at that quantity is determined from the supply curve of labor.

The monopsonist only has to pay the wage that workers at that quantity level are willing to work for.

Examples of Monopsonist Firms

Monopsonist & Minimum Wage

Minimum wage for a monopsonist More workers hired But still less than perfectly competitive Q Makes monopsonist a wage-taker