Micro economic MARKETS FOR FACTORS OF PRODUCTION讲解材料.ppt

18;You know that wage rates vary a lot: A server at McDonald’s earns $8 an hour. Demetrio Luna who cleans the windows of Houston’s high-rise buildings makes $12 an hour. Richard Seymour, who plays for the New England Patriots, collects a cool $25 million a year. What determines the wages that people earn? The price of oil became a big issue in 2008 as new record highs were set. What determines the prices of the natural resources that we use to produce goods and services? ;The Anatomy of Factor Markets;Markets for Land Services and Natural Resources Land consists of all the gifts of nature—natural resources. The market for land as a factor of production is the market for the services of land—the use of land. The price of the services of land is a rental rate. Nonrenewable natural resources are resources that can be used only once, such as oil, natural gas, and coal. The prices of nonrenewable natural resources are determined in global commodity markets.;Entrepreneurship Entrepreneurship services are not traded in markets. Entrepreneurs receive the profit or bear the loss that results from their business decisions.;The demand for a factor of production is a derived demand—it is derived from the demand for the goods that it is used to produce. The quantities of factors of production demanded are a consequence of firms’ output decisions. A firm hires the quantities of factors of production that maximize its profit. The value to the firm of hiring one more unit of a factor of production is called the value of marginal product.;Value of Marginal Product The value to the firm of hiring one more unit of a factor is called its value of marginal product. Value of marginal product of a factor = Price of a unit of output × Marginal product of the factor;Table 18.1 shows the calculation of VMP. From the firm’s total product schedule, calculate the marginal product of labor.;;VMP equals marginal product of labor multiplied by the market price of the good produced.;The Firm’s