
DISINTERMEDIATION: A general deterioration in the profitability of a bank because it pays high interest rates on shortterm borrowing, but earns relatively low interest rates on longterm lending. This was a big, BIG problem for savings and loans (S&Ls) during the 1970s and ultimately caused many of them to fail in the 1980s. S&Ls were designed (by law) to make longterm (30year) home loans to consumers, but to get the funds for these loans using standard savings accounts. When inflation and interest rates shot up in the 1970s, S&Ls found it necessary to pay savers higher rates to get the funds. But, they still had a bunch of home loanswith low interest ratesthat were 15, 20, or 25 years from being repaid. For several years, S&Ls received 6 percent on many of their loans, but paid out something like 12 percent. This gradually eroded their profitability until many were forced to close their doors.
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TOTAL FACTOR COST CURVE: A curve that graphically represents the relation between total factor cost incurred by a firm when using a given factor of production to produce a good or service. The total factor cost curve is most important in factor market analysis for the derivation of the marginal factor cost curve. Two related factor cost curves are average factor cost curve and marginal factor cost curve. The total factor cost curve graphically illustrates the relation between total factor cost and the quantity of input used. This curve reflects the degree of market control held by a firm. For a firm with no market control hiring inputs under perfect competition, the total factor cost curve is a straight line that emerges from the origin. For firms with market control, including monopsony, oligopsony, or monopsonistic competition, the total factor cost curve increases at an increasing rate. The shape of the total factor cost curve thus indicates the degree of market control possessed by the factor buyer.Perfect CompetitionPerfect competition is a market structure with a large number of small participants (buyers and sellers). The good exchanged in the market is identical, regardless of who sells or who buys. Participants have perfect knowledge and perfect mobility into and out of the market. These conditions mean perfectly competitive buyers are price takers, they have no market control and must pay the going market price for all inputs bought.Total Factor Cost Curve, Perfect Competition 

 Total factor cost is commonly represented by a total factor cost curve, such as the one displayed in the exhibit to the right. This particular total factor cost curve is that for labor hired by a hypothetical buyer, Maggie's Macrame Shoppe. Maggie's Macrame Shoppe is one of thousands of small retail stores in the greater Shady Valley metropolitan area that hires labor with identical skills. As such, Maggie pays the going wage for labor.The vertical axis measures total factor cost and the horizontal axis measures the quantity of input (workers). Although quantity on this particular graph stops at 10 workers, the nature of perfect competition indicates it could go higher. This curve indicates that if Maggie hires 1 worker, then she pays $10 of total factor cost. Alternatively, if she hires 10 workers, then she pays $100 of total factor cost. Should she hire 100 workers, then she would move well beyond the graph, with $1000 of total factor cost. The "curve" is actually a "straight line" because Maggie is a price taker in the labor market. She pays $10 for each worker whether she hires 1 worker or 10 workers. The constant price is what makes Maggie's total factor cost curve a straight line, and which indicates that Maggie has no market control. Monopsony, Oligopsony, and Monopsonistic CompetitionFor market structures like monopsony, oligopsony, and monopsonistic competition that have some degree of market control and are price makers rather than price takers, total factor cost is little different. Market control means these market structures face positivelysloped supply curves. As such, the price received is not fixed, but depends on the quantity of the input bought.Total Factor Cost Curve, Monopsony 

 The total factor cost curve for firms with market control looks a little different than that for perfect competition. The exhibit to the right displays the total factor cost curve for another hypothetical firm, OmniKing Island Resort. This firm is the only employer of labor on a small tropical island. As the only employer of labor on the Island, OmniKing is a monopsony with extensive market control, and it faces a positivelysloped supply curve. To employ more workers, OmniKing must pay a higher price.The vertical axis measures total factor cost and the horizontal axis measures the quantity of input (workers). Although quantity on this particular graph stops at 10 workers, it could go higher. This curve indicates that if OmniKing hires 1 worker (at $6 per worker), then it pays $6 of total factor cost. Alternatively, if it hires 10 workers (at $15 per worker), then it pays $150 of total factor cost. For OmniKing the total factor cost "curve" really is a "curve." The slope of this curve rises as more labor is hired. The changing slope of this curve is due to the changing price. Although this total factor cost curve is based on the employment activity of OmniKing Island Resort, a wellknown monopsony firm, it applies to any buyer with market control. Monopsonistic competition and oligopsony firms that also face positivelysloped supply curves generate comparable total factor cost curves.
Recommended Citation:TOTAL FACTOR COST CURVE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 20002018. [Accessed: March 21, 2018]. Check Out These Related Terms...             Or For A Little Background...             And For Further Study...         
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