Factors of Production - rhsweb.org

Factors of Production - rhsweb.org

Competitive vs. Market Power Industries Factor Market Wrap-up Chapter 18 - Part 3 All market structures are Wage-Takers at current wage rate 1 Company Factor Market Product Market General Electric General Electric Refrigerators Price S Low Skilled Workers Wages -------------- Q2 $25,000

D1 D2 Qty E2 E1 Q1 ---------- Q1 E1 ---------- ------------- $700 -----------------

P2 -------------------- E2 MRP1 Q2 MFC1 MRP2 Qty Derived Demand = ? FACTOR MARKET Wage-Takers Entire Factor Market 1 Company Factor Market General Electric Recent College Graduates

Wages S Q2 $45,000 D1 D2 Qty MFC2 ---------- Q1 E1 W2 E2

---------------- -------------- ------------- $45,000 ----------------- W2 -------------------- E2 Wages Q2 Q1 E1 MFC1 MRP1 Qty

All of Microeconomics in one slide: You consume another unit Firms produce another unit MB MC MR MC Firms purchase another input when: MRP MFC Marginal Revenue Product = Marginal Factor Cost Practice Multiple Choice Market Power Industries Competitive Industry Perfect Competition Highest Output

3 Market Power Industries Monopolistic Competition Oligopoly Monopoly All 3 have downward sloping demand curves Lowest Output Market power industries are competitive in the FACTOR MARKET Market Power Industries produce LESS output than Competitive Industries Therefore they need LESS INPUTS! 2 T-Shirt Industries: T-Shirt Industry Competitive Monopoly Set P = MC Lowest price

Highest Qty Set MR = MC Highest price Lowest Qty Hire more inputs Hire less inputs Workers, machines, Cotton, etc Competitive vs. Market Power Firm P = MR for a competitive firm P > MR for a firm with market power Wage rate MFC = wage rate --------------- ---------------

W1 QM QC MRPC MRPM Qty Therefore MRP curves will be different for each type of firm/industry MRPC = MPinput * Price output (use demand curve above) MRPM = MPinput * MRoutput (use MR curve above) Competitive vs. Market Power Competitive Industry Set MRPL = MFCL (wage rate) They are wage takers

Market Power Industry Set MRPL = MFCL (wage rate) They are wage takers Bottom Line: Market power Industries -hire less workers -pay same wage! (Monopoly, Oligopoly, Monopolistic Competition Entire Industry Factor Market Worksheet #3: Competitive vs. Market Power Firms

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