1. Chapter 18 The markets for the factors of production

2. Factors of Production The factors of production are inputs used to produce goods.

3. A firm’s demand for labor the labor markets are governed by the supply and demand labor is known as one of the important factor of production

4. A firms demand for labor, profit maximizing In a competitive firm, it is the price taker for both the good it sells and buys The firm’s supply of goods and it’s demand for workers are derived from its primary goal of maximizing profits

5. The production function and the product of labor marginal Input Price Gets flatter and flatter

6. Marginal Product of Labor the marginal product is the extra output produced by one more unit of an input

7. Diminishing Marginal Product?? Output that results from one additional unit of a factor of production (such as a labor hour or machine hour), all other factors remaining constant. As more and more workers are hired, each additional worker contributes less to the production.

8. Worker #?? u To maximize profit, the firm hires workers up to the point where the VMPL (value-of- marginal-product) is equal to the cost of the labour

9. Shifts in labor Shift in supply- possible cause when there is an increase in available labour Shift in demand- possibly caused by an increase in demand for the final product produced by labor

10. Labor market Equilibrium u Profit maximization by competitive firms demanding labour, ensures that the equilibrium wage always equals the value of the marginal product.

11. Productivity and wages Key words. Capital- stock of equipment & structures used to produce. Goods produced to make new goods and services. Rental price- Price to own a factor for an unlimited or unspecified period of time.. Purchase price-

12. Productivity and wages Purchase price- price to won that factor for an unlimited for an unspecified period of time.

13. Productivity and wages – The economy’s capital represents the accumulation of goods produced in the past that are being used in the present to produce new goods and services.

14. Summary The factors of production are inputs used to produce goods. In a competitive firm, it is the price taker for both the good it sells and buys the marginal product is the extra output produced by one more unit of an input

15. To maximize profit, the firm hires workers up to the point where the VMPL (value-of-marginal-product) is equal to the cost of the labour Profit maximization by competitive firms demanding labour, ensures that the equilibrium wage always equals the value of the marginal product.

16. Questions what is the diminishing marginal product? A law of economics stating that as the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee. Is the competitive firm a price taker or price maker? Price taker