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LEGAL CLAIMS: Ownership of the physical goods, services, and resources that make up the real side of the economy. Legal claims are a key feature of the paper, or financial side of the economy. Transferring legal claims is the primary method of diverting income from household saving to investment and government borrowing. Legal-claim buyers loan income and legal-claim sellers borrower income.
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Lesson 23: Factor Market Equilibrium | Unit 3: Perfect Competition
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Page: 13 of 24
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- This diagram sets the stage for analyzing the labor employment decision by a given firm, assuming perfect competition holds.
- The critical question facing the firm is: How many workers should it hire?
- The profit-maximizing decision by the firm is to hire 50 workers at the $10 wage.
- Should the firm hire more workers, profit declines.
- Should the firm hire fewer workers, profit declines.
- The critical conclusion from this analysis is that a firm in a perfect competition factor market employs a factor such that marginal revenue product (MRP) is equal to marginal factor cost (MFC).
- However, because this marginal factor cost (MFC) is equal to the factor price (W) for perfection competition, we have the secondary result that:
- MRP = W
- This is THE condition for efficiency in a factor market.
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MARGINAL UTILITY OF INCOME The change in utility resulting from a given change in income. This is a specialized case of the general notion of marginal utility, which is simply the change in utility resulting from a given change in the consumption of a good. Marginal utility of income is key to identifying alternative risk preferences, including risk aversion, risk neutrality, and risk loving. These three risk preferences are indicated by three marginal utility of income possibilities, decreasing (risk aversion), increasing (risk loving), and constant (risk neutrality).
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ORANGE REBELOON
[What's This?]
Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors trying to buy either a rotisserie oven that can also toast bread or a flower arrangement in a coffee cup for your father. Be on the lookout for poorly written technical manuals.
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This isn't me! What am I?
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A lump of pure gold the size of a matchbox can be flattened into a sheet the size of a tennis court!
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"Old age isn't so bad when you consider the alternative. " -- Cato, Roman orator
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MPP
Marginal Physical Product
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