Ap Micro Unit 5

Rent of land

- costs of land per hour - based on the best alternative use for the money spent to actually rent the land vs. buying the land

RK

-costs of capital per hour - based on the best alternative of money used to actually rent the machinery vs. buy it

Unions

Are organizations of workers that delegate representatives to negotiate wages and working conditions in hopes to improve them for the members of ___.

Monopolisitc Competition

-many firms -price received by each firm = ATC of production - profits are competed away Long run equillibrium in ___ P>MC so the firm is making a profit. However, this firm is unwilling to lower prices to make more sales. Which means that its operating at excess capacity (to the left or the minimum cost output)

Product differentation

1. Advertising 2. Name brands 3. Actually making different products 4. Style/ type differentiation 5. Location 6. Quality

Shifts of the labor supply curve

1. Changes in preference and social norms (Ex. women ) 2. Changes in population (Ex. Baby boom) 3. Changes in opportunity (Ex. Technology) 4. Changes in wealth

Shifts of the labor supply curve

1. Changes in preferences and social norms can increase or decrease a workers willing needs to work at any given wage. 2. Changes in population 3. Changes in opportunity (for example Human Capital) 4. Changes in wealth

Shifts of the Factor Demand Curve

1. Changes in price 2. Changes in supply of other factors 3. Changes in Technology

Shifts of the factor demand curve

1. Changes in the price of a good 2. Changes in he supply of other factors. (Ex. Capital) 3. Changes in technology (Better technology makes labor more productive, changing the supply of workers)

wage inequality

1. Compensating differences 2. Differences in talent 3. Efficiency wages 4. Unions 5. Differences in human capital 6. Discrimination

VMPK

= R of Capital -per hour capital earnings - diminishing returns -represents demand for capital -capital demanded is derived from the demand for the product

VMP of Land

= Rent of Land -per hour land earnings -downward sloping b/c of diminishing returns -represents the demand for land -land demand is derived from the product demand

VMPL

= Wage ~Represents the per hour earnings from labor ~ Downward sloping as a result of diminishing returns ~ Represents the demand for labor ~ Labor demanded is derived from the products demand.

Wage

=VMPL - Represents per hour costs of labor - Usually based on a perfectly competitive labor market.

brand name

A ____ is a name owned by a particular firm that distinguishes its products from those of other firms. ex. McDonalds

Monopolistic competition in the long run

A firm has reached ____ when there is no entry or exit. At this time firms are earning a profit of zero.

Substitution effect

A higher increase increases the opportunity costs, price vs. leisure. If leisure comes at a higher price, the person will ___ fewer hours of leisure for more hours of work

Income effect

A higher wage increases a person's income no matter how many hours of work they choose. A greater ____ will make a person have more leisure time. Reducing their hours of work, making leisure more of a normal good.

Discrimination

Based on race, gender, age, sexual preference etc.

Quality differentiation

Consumers buy products based on ____, high or low ____ will help determine the price.

Efficiency wage model

Explains why some people earn wages above equilibrium. Some employers pay an above equilibrium wage as an incentive for better performance and loyalty. However this results in unemployment and inefficient outcomes.

Cost minimization

Firms must weigh their options and compare costs of capital to costs of labor to figure out how to reach the ___ point.

Long run equilibrium

Firms that incur constant losses will not be producing in the ___. Firms that have a profit haven't entered ___ because new firms are entering the market because of the profit the firm has made and due to free entry. (New firms entering the market decreases the demand and MR, firms exiting do the opposite).

Changes in the price of goods

If ___________ so does the VMP of a factor. VMP = P x MPL (for a MPL at any given price of the good)

Long run zero profit equillibrium

If existing firms are profitable more firms will enter the market, thus causing an increase in demand. Losses will result in a demand increase. When entry and exit into the market ceases , firms enter ___. This means that in the long run ATC is tangent to P and ATC (monopolistic competition) and meet at a profit maximizing quantity.

Excess capacity

In monopolistic competition the firm produces less than the quantity that would maximize ATC. The failure to produce enough is ___.

Efficiency wage concept

It might benefit workers to pay them a higher wage, in order to keep loyalty to the firm.

4 Fators of Production

Land, Labor, Capital (both Physical and Human Capital), and Entrepreneurship

Perfect competition

Long run equillibrium in _____. -many firms -price received by each firm = ATC of production - profits are competed away ~ willing to sell another unit of output because P = MC so they can produce at their profit maximizing output

Calculating the Value Marginal Product of Labor (VMPL)

MPL x P = VMPL (recall: P= MR)

Profit maximization

Marginal benefit = marginal cost (MB = MC) Marginal revenue = marginal cost (MR = MC) Marginal revenue = value of the marginal product of labor (MR = VMPL) Marginal cost = wage/ Marginal Revenue Product (MC =W/MRP) To reach the ____ point a firm should hire additional units of a resource as long as each successive unit adds to the firms total revenue rather than add to its total cost.

Competition among sellers

Means that although sellers sell differentiated proudcts, they're not offering the same goods, so these producers are a host in a limited market. If more businesses enter the market a smaller quanity will be produced.

Controversies about product differentaitation

Often times products are simmilar. A hotel will always be a hotel, a battery will always be a battery, a matress will always be a matress, however as a result of name brands the same products and advertising to make their products seem different.

Calculating total revenue product

P x output per hour

Style differentiation

Preferences depend on a consumers moods or likes. These preferences often don't make consumers indifferent to price. With these products, as a result of different vendors, consumers can find perfect or imperfect substitutes.

Substitutes

Price of firms inputs determine how much of an input will be used and if they'll choose another input. Ex. Capital & Labor (ATM machine and bank teller)

Compliments

Price of related goods effect how customers buy. Ex. Capital and Labor (Tractor and Driver)

Value in diversity

Refers to the gain to the customers from the rapid increase of differentiated products. When a product is available in different qualitites fewer people are forced to pay for more quality than they need. (benefits to the consumer)

individual labor supply curve

Shows how the quanity of labor supplied by an individual depends on that individuals wage rate. This curve does not always slope upward because the subsitution effect or the income effect could be more dominant. Also known as the backward bending ______.

Supply market for capital

The __ curve for capital is relaatively flat and elastic be cause the supply of capital is responsive to price. The more money one offers, the more captial. The capital ___ curve will shift as the factor becomes more or less available.

Supply market for land

The ___ curve for land is relativley steep and inelastic because finding new suppliers of land for production is difficult and expensive. This ____ curve will shift as the factor becomes more or less available.

Value of the Marginal Product of Labor

The ____ of a factor is the value of an additinal output generated by emplying one more unit of that factor. ____ can be calculated by doing P x MPL If ___ > W more workers should be hired If ___< W don't hire more workers If ___ = W the right amount of workers are currently hired. (this is the optimal choice, also known as the point where MB = MC).

Calculating marginal revenue product

The change in total revenue product divided by the change in labor.

Rental rate

The explicit cost of renting a unit of land or capital for a set period.

Differences in human captial

The individual with a higher degree, more training and more experience is often paid more than the individual with less.

Equilibrium in the labor market

The labor supply curve is upward sloping, and it looks like a regular supply and demand curve

Rental rate

The marginal cost of hiring the next unit of land or capital. explicitly: if firms are actually ___ the machine or land from someone else. implicitly: if the firm already owns the machine, this is what the firm could ___ to someone else.

Derived demand

The market for a factor of production is allocation, within that factor of production, where it is needed. Factor markets are special because the demand for a factor is ____. This results from the demand for the output being produced. ____ means that the demand for the factor is taken from the demand of the firms output.

Changes in supply

The more land the more workers resulting in a higher MPL. The less land the less labor resulting in a lower MPL.

Decrease in product

The price decrease shifts the MPL downward because the VMPL decreases at any given level of emplyment., If wage stays at this price the profit max of employment falls.

Increase in product

The price increase shifts the MPL upward because VMPL risesz at any given level of emplyment. If wages don't chagne this is still this is still the optimal point with more workers, with a ____.

Equilibrium value of the marginal product

The value of the product where the equilibrium value is produced by the last unit of that factor employed in the market as a whole.

Monopolistic competition in the short run

There is a downward sloping demand curve, and because of this there is also a downward sloping marginal cost curve. To maximize profits MR needs to equal MC. In order for firms to be profitable/ unprofitable in the ____ one must determine if price is greater or less than ATC. P>ATC profitable P< ATC incurs loss P=ATC break even

Factor distribution of income

This is how the total income of the company is divided among land, labor, capital and entrepreneurship. Factor prices usually determine this.

Physical Capital

This is referred to as the capital that consists of manufactured productive tools and resources. ex. Equiptment, buildings and machinery.

Human Capital

This is the improvement in labor created by education or training embodied in the work force. ex. Job Corps, Post Secondary Education

Efficiency wages

This is when employers offer employees a higher salary or benefits in order to reduce worker the amount of people who don't work hard and the amount of people who leave the company. This is also done so that employees have loyalty and don't want to substitute their jobs, and creates incentives for employees to work harder or else they might loose their job.

Capital intensive

This is when the work is done by machine and equipment and hire less laborers.

Labor intensive

This is when the work is done by workers instead of just equipment.

Cost minimizing rule

This rule states that firms should hire factors so that the marginal product per dollar spent on each factor is the same. MPL / W = MPK / R This is the optimal point. MPL / W > MPK / R MPK will rise until the two are equal. Hire more capital. MPL / W < MPK / R MPL will rise as laborers are hired. They will be substituted until L = K. Hire more workers.

Marginal Productivity Theory of Income Distribution

This theory states that every factor of production is paid the equillibrium value of its marginal product. Which basically means that all factors are paid the value of the output that is generated by the last unit of the factory employed in the factor market as a whole. (Basically how wages are determined).

Differences in talent

Those who harbor special techniques are often paid more than others. Especially if they produce a better product than someone with the same or less talent. Ex. Beyoncé vs. Katie Got Bandz

Profit maximization point for capital

To reach the ___ a producer will make sure to rent more capital up until the value marginal product of capital equals the rental rate per piece of equiptment.

Profit maximization point for land

To reach the ____ a producer will make sure to rent more land up until the value marginal product of land equals the rental rate per acre.

Wasteful duplication

When firms produce at excess capacity the competitor implied __ because they offer to much of a variety.

income effect

When the ____ dominates the subsition effect for the inidivudal labor supply curve slopes downward. This means that there are higher wage rates. This is caused by a change in wealth shifting the supply curve, while a wage increase is movement along the curve.

subsitution effect

When the _____ dominates the individual labor supply curve slopes upward. This means that there are lower wage rates.

Zero profit equilibrium

Where each firm makes zero profit at the profit maximization quantity.

Posted prices

Will increase revenue more than it will increase losses because the posted price exceeds the marginal cost.

Compensating differentials

Workers with the same training and human capital are paid more for working in different environments and circumstances. Because some jobs are more dangerous than others. Ex. Police in Chicago vs. Police in Indiana

Equillibrium in a land market

___ rental rate and quanity are found where the supply and demand curve intersect. In a competitive market for land, each unit of land will be paid the ___ VMPL (land).

Location differentiation

____ matter to customers especially when involving the nearest _____. It's efficient to choose the nearest ____.

Equillibrium in the capital market

____ rental rate and quanity are found where the supply and demand curve intersepct. In a competivie market for capital, each unit of capital willl be paid a the VMPK(capital).

Changes in technology

ex. Transportation vs. Horses With the ____ the demand for certain things increased and decreased. On the part of laborers, machinery can make workers more productive or be replaced by machine who does work more effectively.

time allocation

how many hours to spend on different actvities ex. work, leisure, etc.

Value of the Marginal Product of Demand

shows how the VMPL depends on the quantiy of the factor employed. -This curve usually slopes downward due to diminishing returns in labor production. (MP of each worker is less than that of the preceeding worker.) -A firm can increase profits by employing one more unit of a factor of production as long as the VMP > P. -When VMP = P firms shouldn't increase or decrease the units of the fator of production because this is the optimal point.

leisure

the time spent not owkring ex. Family time, vacationing, etc.