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University of Hawai‘i at Mānoa Department of Economics. ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lectures #27 & 28 Tuesday, April 20, 2004 and Thursday, April 22, 2004. ANNOUNCEMENTS. LAST LECTURE - PowerPoint PPT Presentation
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University of Hawai‘i at MānoaDepartment of Economics
ECON 130 (003): Principles of Economics (Micro)
http://www2.hawaii.edu/~lindoj
Gerard Russo
Lectures #27 & 28
Tuesday, April 20, 2004 and
Thursday, April 22, 2004
ANNOUNCEMENTSLAST LECTURETuesday, May 4, 2004, 12:00-1:15 PM,
BIL 152
Review SessionThursday, May 6, 4:30-5:30 PM, BIL 152
FINAL EXAMINATION Thursday, May 13, 2004, 12:00-2:00 PM,
BIL 152
Lectures 27 & 28
Introduction to Factor (Input) MarketsCompetitive Output Market/Competitive Input
MarketMonopolistic Output Market/Competitive Input
MarketCompetitive Output Market/Monopsonistic
Input MarketMonopolistic Output Market/Monopsonistic
Input Market
Labor Markets
Production TheoryTotal ProductAverage ProductMarginal Product
Labor DemandMarginal Revenue Product (MRP)Value of the Marginal Product (VMP)
Marginal Revenue Product (MRP)
Marginal Revenue Product of Labor equals the Marginal Revenue times the Marginal Product of Labor
MRPL= MR*MPL
Units of Measure: $/L = ($/Q)*(Q/L)
Value of the Marginal Product (VMP)
The Value of the Marginal Product of Labor equals the output Price times the Marginal Product of Labor
VMPL= P*MPL
Units of Measure: $/L = ($/Q)*(Q/L)For a competitive firm P=MR, therefore MR*MP=MRP=VMP=P*MPFor a monopolistic firm P>MR, therefore P*MP=VMP>MRP=MR*MP
FACTOR COST
Marginal Factor Cost (MFC)
Average Factor Cost (AFC)
Under a rule of one price (wage), the wage rate, W, equals the average factor cost, AFC
W=AFC
$/L
L
MRP=VMP
0
DL
Labor Market
Competitive Input Market/Competitive Output Market
$/L
L0
Competitive Firm
SL
W
L*
W=AFC=MFC=MRP=VMP
$/L
L
MRPL
0
DL
Labor Market
Competitive Input Market/Monopolistic Output Market
$/L
L0
Monopolistic Firm
SL
W
L*
W=AFC=MFC=MRP<VMP
VMPL
$/L
L
MRPL
0
DL
Labor Market
Competitive Input Market/Monopolistic Output MarketWelfare Effects
$/L
L0
Monopolistic Firm
SL
W
LM
VMPL
LC
Welfare LossDue to Monopoly
$/L
Q
MRPL
0
D
The welfare effects of monopoly can be viewed from either the output market or input market.
$/Q
L0
Monopolistic Firm: Input Decision
MC
W
LM
VMPL
LC
Welfare LossDue to Monopoly
Monopolistic Firm: Output Decision
MRQM QC
Welfare LossDue to Monopoly
$/L
L0
MRPL=VMPL
MFCL
Competitive Output Market/MONOPSONY
SL: AFCL
W=AFC<MFC=MRP=VMP
W*
L*
Welfare Loss
$/L
L0
VMPL
MFCL
Monopolistic Output Market/MONOPSONY
SL: AFCL
W=AFC<MFC=MRP<VMP
W*
L*
MRPL
Welfare
Loss
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