Resource
Market
Mr. Barnett
AP 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 input
Note: 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