Agenda
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Collect HW
Review/Overview
Unions and Minimum Wage
Stocks Research Reporting
Former Students HW
Factors Market
Factors of Production
• Factors, Resources, Inputs
– Land
– Labor
– Capital
– Entrepreneurship
Cost Minimizing Combination of Resources
at a Given Level of Output
• MPP/$ of Labor = MPP/$ of Capital
– $ = MRC = Price (in perfectly competitive market)
– Example
• MPP last unit of labor = 5
• MPP last unit of capital = 8
• Labor MPP/$ = .5
Wage rate (MRC)= $10
MRC = $16
Capital MPP/$ = .5
Optimal Combination (Profit Maximizing)
of Resources at a Given Level of Output
• MRP/$ of Labor = MRP/$ of Capital
– $ = MRC = Price (in perfectly competitive market)
– Example
• MRP last unit of labor = $10
• MRP last unit of capital = $16
• Labor MRP/$ = Capital MRP/$ = 1
Wage rate (MRC)= $10
MRC = $16
Perfectly Competitive Labor Market
Perfectly Competitive Labor Market
Perfectly Competitive Labor Market
• Households = Supply
• Firms = Demand
Perfectly Competitive Market and Firm
Wage Elasticity- Labor Markets
Perfectly Competitive Market and Firm
• Supply = Marginal Resource Cost (MRC)
• Demand = Marginal Revenue Product (MRP)
• Profit-Max Q of Labor: MRP=MRC
Perfectly Competitive Firm
• MRP>MRC- hire more
• MRC>MRP- fire some
Monopolist and
Perfectly Competitive Labor Market
Monopolist and
Perfectly Competitive Labor Market
Labor Market Monopsony
in Competitive Product Market
*one buyer of labor (only one firm hiring)
Labor Market Monopsony
Product Market Monopoly
*one buyer of labor (only one firm hiring)
Minimum Wage in PC Labor Market?
Minimum Wage with Monopsony in
Labor Market?
SANTA
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Ded Moroz
Joulupukki
Weihnachtsmann
Pai Natal
Babbo Natale
Minimum Wage Monopolist and
Perfectly Competitive Labor Market
Unions
• Collective Bargaining
• _________ of workers
• Clayton Antirust Act (1914)
Unions in PC Labor Market?
Union and Monopolist and
Perfectly Competitive Labor Market
Unions and Monopsonistic Labor
Market?
Agenda
• FRQ return
• Land and Economic Rent
• FRQs
– dos mas
– De nada
Unions and Monopsonistic Labor
Market
• Bilateral Monopoly
– One buyer, One seller
– Outcome is difficult to predict
Other Factors
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Labor = Wage
Capital = Interest (that’s it until macro)
Land = Rent
Entrepreneurship- profit
Land
Economic Rent
• Term originally only applied to land
• Payment for land above price necessary for
land to be made available
• A decrease in the payment for land will not
reduce the quantity of land available for rent.
Economic Rent- modern
• Payment for any factor above price necessary
for that factor to be employed
• A decrease in the payment for the factor will
not reduce the available supply of the factor
Economic Rent- in other words
• Payment for/to any factor above the payment
required by its owner
Human Capital
• Investment to improve skills and productivity
of labor
• Self or Firm
• High wage jobs OFTEN include large human
capital investments
From the Homework
• Petroleum
• Nuts and bolts
• Prize Horse
From the Homework
• Professors’ Salary and Marginal Productivity
From the Homework
• University Monopsony?
• Student Unions?