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1、Fernando&Yvonn QuijanoPrepared by:Markets forFactor Inputs14C H A P T E RCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs2 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pin
2、dyck/Rubinfeld,8e.CHAPTER 14 OUTLINE14.1 Competitive Factor Markets14.2 Equilibrium in a Competitive Factor Market14.3 Factor Markets with Monopsony Power14.4 Factor Markets with Monopoly PowerChapter 14:Markets for Factor Inputs3 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall
3、 Microeconomics Pindyck/Rubinfeld,8e.MARKETS FOR FACTOR INPUTSWe will examine three different factor market structures:1.Perfectly competitive factor markets;2.Markets in which buyers of factors have monopsony power;3.Markets in which sellers of factors have monopoly power.Chapter 14:Markets for Fac
4、tor Inputs4 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1Demand for a Factor Input When Only One Input Is Variable marginal revenue product Additional revenue resulting from the sale of output created by the u
5、se of one additional unit of an input.How do we measure the MRPL?Its the additional output obtained from the additional unit of this labor,multiplied by the additional revenue from an extra unit of output.derived demand Demand for an input that depends on,and is derived from,both the firms level of
6、output and the cost of inputs.(14.1)This important result holds for any competitive factor market,whether or not the output market is competitive.Chapter 14:Markets for Factor Inputs5 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14
7、:Markets for Factor Inputs6 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1Demand for a Factor Input When Only One Input Is VariableA Shift in the Supply of LaborFigure 14.3When the supply of labor facing the fi
8、rms is S1,the firm hires L1 units of labor at wage w1.But when the market wage rate decreases and the supply of labor shifts to S2,the firm maximizes its profit by moving along the demand for labor curve until the new wage rate w2 is equal to the marginal revenue product of labor.As a result,L2 unit
9、s of labor are hired.Chapter 14:Markets for Factor Inputs7 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1Demand for a Factor Input When Only One Input Is Variable(14.4)Recall that MRPL=(MPL)(MR)and divide both
10、sides of equation by the marginal product of labor.Then,Equation(14.4)shows that both the hiring and output choices of the firm follow the same rule:Inputs or outputs are chosen so that marginal revenue(from the sale of output)is equal to marginal cost(from the purchase of inputs).This principle hol
11、ds in both competitive and noncompetitive markets.Chapter 14:Markets for Factor Inputs8 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1Demand for a Factor Input When Several Inputs Are VariableFirms Demand Curve
12、 for Labor(with Variable Capital)Figure 14.4When two or more inputs are variable,a firms demand for one input depends on the marginal revenue product of both inputs.When the wage rate is$20,A represents one point on the firms demand for labor curve.When the wage rate falls to$15,the marginal product
13、 of capital rises,encouraging the firm to rent more machinery and hire more labor.As a result,the MRP curve shifts from MRPL1 to MRPL2,generating a new point C on the firms demand for labor curve.Thus A and C are on the demand for labor curve,but B is not.Chapter 14:Markets for Factor Inputs9 of 29C
14、opyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs10 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1Understanding the demand
15、for jet fuel is important to managers of oil refineries,who must decide how much jet fuel to produce.It is also crucial to managers of airlines,who must project fuel purchases and costs when fuel prices rise.The price elasticity of demand for jet fuel depends both on the ability to conserve fuel and
16、 on the elasticities of demand and supply of travel.Chapter 14:Markets for Factor Inputs11 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1The Short-and Long-Run Demand for Jet FuelFigure 14.6The short-run demand
17、 for jet fuel MRPSR is more inelastic than the long-run demand MRPLR.In the short run,airlines cannot reduce fuel consumption much when fuel prices increase.In the long run,however,they can switch to longer,more fuel-efficient routes and put more fuel-efficient planes into service.Chapter 14:Markets
18、 for Factor Inputs12 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs13 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.14.1The Supply of Inputs to
19、a Firm average expenditure curve Supply curve representing the price per unit that a firm pays for a good.Profit maximization requires that marginal revenue product be equal to marginal expenditure:marginal expenditure curve Curve describing the additional cost of purchasing one additional unit of a
20、 good.(14.5)In the competitive case,the condition for profit maximization is that the price of the input be equal to marginal expenditure:(14.6)COMPETITIVE FACTOR MARKETSChapter 14:Markets for Factor Inputs14 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyc
21、k/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs15 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.14.1The Market Supply of InputsSubstitution and Income Effects of a Wage IncreaseFigure 14.9When the wage rate increases from$10 to$30 per h
22、our,the workers budget line shifts from PQ to RQ.In response,the worker moves from A to B while decreasing work hours from 8 to 5.The reduction in hours worked arises because the income effect outweighs the substitution effect.In this case,the supply of labor curve is backward bending.COMPETITIVE FA
23、CTOR MARKETSChapter 14:Markets for Factor Inputs16 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.COMPETITIVE FACTOR MARKETS14.1The complex nature of the work choice was analyzed in a study that compared the work decisions of 94 unmarried fe
24、males with the work decisions of heads of households and spouses in 397 families.Chapter 14:Markets for Factor Inputs17 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs18 of 29Copyright 2009 Pearson Educati
25、on,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.EQUILIBRIUM IN A COMPETITIVE FACTOR MARKET14.2Economic RentFigure 14.11The economic rent associated with the employment of labor is the excess of wages paid above the minimum amount needed to hire workers.The equilibrium wage is
26、given by A,at the intersection of the labor supply and labor demand curves.Because the supply curve is upward sloping,some workers would have accepted jobs for a wage less than w*.The green-shaded area ABw*is the economic rent received by all workers.For a factor market,economic rent is the differen
27、ce between the payments made to a factor of production and the minimum amount that must be spent to obtain the use of that factor.Economic RentChapter 14:Markets for Factor Inputs19 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.EQUILIBRIUM
28、IN A COMPETITIVE FACTOR MARKET14.2Land RentFigure 14.12When the supply of land is perfectly inelastic,the market price of land is determined at the point of intersection with the demand curve.The entire value of the land is then an economic rent.When demand is given by D1,the economic rent per acre
29、is given by s1,and when demand increases to D2,rent per acre increases to s2.Economic RentChapter 14:Markets for Factor Inputs20 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.EQUILIBRIUM IN A COMPETITIVE FACTOR MARKET14.2During the Civil Wa
30、r,roughly 90 percent of the armed forces were unskilled workers involved in ground combat.Since then,however,the nature of warfare has evolved.Ground combat forces now make up only 16 percent of the armed forces.Meanwhile,changes in technology have led to a severe shortage in skilled technicians,tra
31、ined pilots,computer analysts,mechanics,and others needed to operate sophisticated military equipment.Chapter 14:Markets for Factor Inputs21 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.EQUILIBRIUM IN A COMPETITIVE FACTOR MARKET14.2The Sho
32、rtage of Skilled Military PersonnelFigure 14.13When the wage w*is paid to military personnel,the labor market is in equilibrium.When the wage is kept below w*,at w0,there is a shortage of personnel because the quantity of labor demanded is greater than the quantity supplied.Chapter 14:Markets for Fa
33、ctor Inputs22 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.FACTOR MARKETS WITH MONOPSONY POWER14.3Monopsony Power:Marginal and Average ExpenditureMarginal and Average ExpenditureFigure 14.14When the buyer of an input has monopsony power,th
34、e marginal expenditure curve lies above the average expenditure curve because the decision to buy an extra unit raises the price that must be paid for all units,not just for the last one.The number of units of input purchased is given by L*,at the intersection of the marginal revenue product and mar
35、ginal expenditure curves.The corresponding wage rate w*is lower than the competitive wage wc.Chapter 14:Markets for Factor Inputs23 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs24 of 29Copyright 2009 Pea
36、rson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.FACTOR MARKETS WITH MONOPSONY POWER14.3In the United States,major league baseball is exempt from the antitrust laws.This exemption allowed baseball team owners(before 1975)to operate a monopsonistic cartel.Fortunately
37、 for the players,and unfortunately for the owners,there was a strike in 1972 followed by a lawsuit by one player and an arbitrated labor-management agreement.This process eventually led in 1975 to an agreement by which players could become free agents after playing for a team for six years.Chapter 1
38、4:Markets for Factor Inputs25 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.FACTOR MARKETS WITH MONOPSONY POWER14.3In 1992 the New Jersey minimum wage was increased from$4.25 to$5.05 per hour.Using a survey of 410 fast-food restaurants,Davi
39、d Card and Alan Krueger found that employment had actually increased by 13 percent.One possibility is that restaurants responded to the higher minimum wage by reducing fringe benefits.An alternative explanation for the increased New Jersey employment holds that the labor market for teenage(and other
40、)unskilled workers is not highly competitive.Chapter 14:Markets for Factor Inputs26 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.FACTOR MARKETS WITH MONOPOLY POWER14.4Monopoly Power over the Wage RateMonopoly Power of Sellers of LaborFigur
41、e 14.15When a labor union is a monopolist,it chooses among points on the buyers demand for labor curve DL.The seller can maximize the number of workers hired,at L*,by agreeing that workers will work at wage w*.The quantity of labor L1 that maximizes the rent earned by employees is determined by the
42、intersection of the marginal revenue and supply of labor curves;union members will receive a wage rate of w1.Finally,if the union wishes to maximize total wages paid to workers,it should allow L2 union members to be employed at a wage rate of w2.At that point,the marginal revenue to the union will b
43、e zero.Chapter 14:Markets for Factor Inputs27 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Chapter 14:Markets for Factor Inputs28 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.FAC
44、TOR MARKETS WITH MONOPOLY POWER14.4Union Workers as a Percentage of TotalFigure 11.2The percentage of workers that are unionized has been declining steadily over the past 25 years.Chapter 14:Markets for Factor Inputs29 of 29Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconom
45、ics Pindyck/Rubinfeld,8e.FACTOR MARKETS WITH MONOPOLY POWER14.4While computer use increased for all workers,the largest increases were registered by workers with college degreesfrom 42 to 82 percent.Education and computer use have gone hand in hand to increase the demand for skilled workers.A statistical analysis shows that,overall,the spread of computer technology is responsible for nearly half the increase in relative wages during this period.-