The Anatomy of Factor Markets Entrepreneurship Entrepreneurship services are not traded in markets. Entrepreneurs receive the profit or bear the loss that results from their business decisions. 2012 Pearson Education
© 2012 Pearson Education Entrepreneurship Entrepreneurship services are not traded in markets. Entrepreneurs receive the profit or bear the loss that results from their business decisions. The Anatomy of Factor Markets
The Demand for a Factor of Production 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. 2012 Pearson Education
© 2012 Pearson Education 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. The Demand for a Factor of Production
The Demand for a Factor of Production 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 X Marginal product of the factor 2012 Pearson Education
© 2012 Pearson Education 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 The Demand for a Factor of Production
The Demand for a Factor of Production Table 18.1 shows the calculation of VMP. From the firm's total product schedule,calculate the marginal product of labor. -TABLE 18.1 Value of Marginal Product at Angelo's Bakery Quantity Total Marginal of labor product product ) (TP) (workers) (loaves per hour) A 0 0 1 2 13 …5 0 18 …4 22 +3 5 25 2012 Pearson Education
© 2012 Pearson Education Table 18.1 shows the calculation of VMP. From the firm’s total product schedule, calculate the marginal product of labor. The Demand for a Factor of Production
TABLE 18.1 Value of Marginal Product at Angelo's Bakery Value of Quantity Total Marginal marginal of labor product product product ) (TP) MP=△TP/△L) (VMP=MP×P) (workers) (loaves per hour) (loaves per worker) (dollars per worker) A 0 0 7 14 B 7 12 2 13 …5 10 D 3 18 4 E 22 6 5 25 2012 Pearson Education
© 2012 Pearson Education