EC120 Chapter Notes - Chapter 18: Opportunity Cost, Marginal Revenue, Marginal Product
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EC120 Full Course Notes
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The inputs used to produce goods and services. A firm"s demand for a factor of production is derived from its decision to supply a good in another market. Labour markets, like other markets in the economy are governed by the forces of supply and demand. By examining the link between the production of goods and the demand for labour, we gain insight into the determination of equilibrium wages. The firm"s supply of apples and its demand for workers are derived from its primary goal of maximizing profit. The production function and the marginal product of labour. To make its hiring decision, it must consider how the number of apple pickers affects the quantity of apples it can harvest and sell. Marginal product of labour: the increase in the amount of output from an additional unit of labour. Diminishing marginal product: the property whereby the marginal product of an input declines as the quantity of the input increases.