Micro Final Pt. II

MRC = MRP

when the competitive employer is a wage taker and employs workers at the point where the wage rate (=MRC) equals MRP. -monopsonist will employ fewer workers and pay a lower wage rate than would a purely competitive employer.

demand enhancement union model

a union increases the wage rate by increasing labor demand through actions that increase product demand or alter the prices of related inputs.

exclusive craft union model

a union increases wage rates by artificially restricting labor supply, through long apprenticeships or occupational licensing.

inclusive industrial union model

a union raises the wage rate by gaining control over a firm's labor supply and threatening to withhold labor via a strike unless a negotiated wage is obtained.

labor demand vs labor supply

real wages have increased over time in the US because labor demanded has increased relative to labor supply.

monopsony

-firm is a "wage maker" -upsloping labor supply to firm

bilateral monopoly

-a single seller and a single buyer -strong industrial union is formed in a monopsonist labor market rather that a competitive labor market, thereby creating a combination of the monopsony model and the inclusive unionism model. -OCCURS in a labor market where a monopsonist bargains with an inclusive, or industrial, union. Wage and employment outcomes are determined by collective bargaining in this situation. -EXAMPLE: steel, automobiles, construction equipment, professional sports, and commercial aircraft.

marginal revenue productivity = firm's demand for that resource

-demand for that resource will depend on its productivity on the market value (price) of the good it is used to produce. -each point on the MRP curve indicates how many resource units the firm will hire at a specific resource price. -firm's demand curve for a resource slopes downward because the MP of additional units declines in accordance with the law of diminishing returns.

purely competitive market

-numerous firms compete with one another in hiring a specific type of labor -each of many qualified workers with identical skills supplies the type of labor -individual firms and individual workers are "wage takers" since neither can exert any control over the market wage rate.

resource pricing

-resource priced help determine money incomes, and simultaneously ration resources to various industries and firms.

resources in competitive firms

any specific level of output will be produced with the least costly combination of variable resources when the marginal product per dollar's worth of each input is the same. MP of labor/P of labor= MP of capital/P of capital profit-maximizing combination of resources: MRP of labor/price of labor= MRP of capital/price of capital=(1)

wage differentals

attributable in general to the forces of supply and demand, influenced by differences in workers' marginal revenue productivity, education, and skills and by non-monetary differences in jobs. Several labor market imperfections also play a role.

determinants of elasticity of resource demand

elasticity for a resource will be greater... -the greater the ease of substituting other resources for labor -the greater elasticity of demand for the product -the larger the proportion of total production costs attributable to the resource.

labor market equilibrium

intersection of the market labor demand curve and the market labor supply curve (wage rate and level of employment in a purely competitive labor market).

proponents of minimum wage

needed to assist the working poor and to counter monopsony where it might exist; critics say that it is poorly targeted to reduce poverty and that it reduces employment.

wages vs productivity

over the long term, real wages per worker have increased at about the same rate as worker productivity.

marginal productivity theory of income distribution

paid according to their marginal contribution to output. -each resource is used to the point where its marginal revenue product equals the price. -all resources are paid according to their marginal contributions to output.

increase vs decrease resource demand

the demand curve for a resource will shift because... -a change in the demand for, and therefore the price of, the product the resource is producing -changes in productivity of the resource -changes in the prices of other resources

pure monopsony

the labor supply curve for the FIRM and the total labor supply curve for the LABOR MARKET are identical. -upsloping supply curve because the firm must pay higher wage rates if it wants to attract and hire additional workers.

MRC higher than wage rate

the monopsonist is the only employer in the labor market, therefore its marginal resource (labor) cost exceeds the wage rate. -monposonist's MRC curve lies ABOVE the average cost of labor curve or labor supply curve S.

selling in a imperfectly competitive market

the resource demand curve falls because product price must be reduced for the firm to sell a larger output.