【正文】 ers of parts and ponents ?Assume ?The output market is perfectly petitive ?Input market is pure monopsony 169。2020 Pearson Education, Inc. Chapter 14 57 The Shortage of Skilled Military Personnel Number of Skilled Workers Wage SL DL = MRPL w* w0 Shortage 169。2020 Pearson Education, Inc. Chapter 14 55 Pay in the Military ?During the Civil War, 90% of the armed forces were unskilled workers involved in ground bat ?Today, only 16% are unskilled workers involved in ground bat ?Lead to severe shortages in skilled workers 169。2020 Pearson Education, Inc. Chapter 14 53 Equilibrium in a Competitive Factor Market ?Land: A Perfectly Inelastic Supply ?Occurs when land for housing or agriculture is fixed, at least in short run ?Its price is determined entirely by demand ?When demand increases, rental value per unit increases and total land rent increases 169。2020 Pearson Education, Inc. Chapter 14 51 Equilibrium in a Competitive Factor Market ?Economic Rent ?For a factor market, economic rent is the difference between the payments made to a factor of production and the minimum amount that must be spent to obtain the use of that factor ?The economic rent associated with the employment of labor is the excess of wages paid above the minimum amount needed to hire workers 169。2020 Pearson Education, Inc. Chapter 14 49 Equilibrium in a Competitive Factor Market ?If output market is not petitive: ?Although the firm maximizes profits, output is below efficient level and uses less than efficient level of input ?Economic efficiency would be increased if more laborers were hired and more output were produced ?Gains to consumers would outweigh firm’s lost profit 169。2020 Pearson Education, Inc. Chapter 14 47 Equilibrium in a Competitive Factor Market ?When output and input markets are both perfectly petitive, resources are used efficiently ?Maximize TB – TC ?Efficiency requires that MRPL equals the benefit to consumers of the additional output, given by (P)(MPL) 169。2020 Pearson Education, Inc. Chapter 14 45 Equilibrium in a Competitive Factor Market ?Competitive factor market is in equilibrium when the prevailing price equates quantity supplied and quantity demanded ?Since workers are well informed, all receive the same wage and generate identical MRPL when employed 169。2020 Pearson Education, Inc. Chapter 14 43 Elasticities of Labor Supply (Hours Worked) 169。2020 Pearson Education, Inc. Chapter 14 41 Ine Effect Substitution Effect Ine Effect Substitution Effect BackwardBending Supply of Labor Hours of Work per Day Wage ($ per hour) Supply of Labor 169。2020 Pearson Education, Inc. Chapter 14 39 Competitive Factor Markets ?The Supply of Labor ?If the ine effect exceeds the substitution effect, the supply curve is backward bending ?By using utility and budget line graph, we can show how the supply curve can be backward bending ? Can show how the ine effect can exceed the substitution effect 169。2020 Pearson Education, Inc. Chapter 14 37 The Supply of Inputs to a Firm ?The Supply of Labor ?The choice to supply labor is based on utility maximization ?Leisure petes with ine for utility ?Wage rate measures the price of leisure ?Higher wage rate causes the price of leisure to increase 169。2020 Pearson Education, Inc. Chapter 14 35 The Supply of Inputs to a Firm ?Profit maximization requires the marginal expenditure to be equal to the marginal revenue product ME = MRP ?A special case of petitive output market shows profit maximization where ME = w 169。2020 Pearson Education, Inc. Chapter 14 33 The Supply of Inputs to a Firm ?Remember that the supply curve is the average expenditure curve ?Supply curve representing the price per unit that the firm pays for a good ?Also, marginal expenditure curve represents the firm’s expenditures on an additional unit that it buys ?Analogous to MR curve in output market 169。2020 Pearson Education, Inc. Chapter 14 31 The Supply of Inputs to a Firm ?In a petitive market, a firm can purchase as much of an input it wants at the market price ?Determined by supply/demand of input market ?Input supply to a firm is perfectly elastic ?Firm is small part of market so does not affect market price 169。2020 Pearson Education, Inc. Chapter 14 29 The Demand for Jet Fuel ?There is no good substitute for jet fuel ?Long run elasticity of demand is higher, however, because airlines can eventually introduce more energyefficient airplanes ?Can show short and longrun demands for jet fuel ?MRPSR is much less elastic than long run demand since it takes time to substitute 169。2020 Pearson Education, Inc. Chapter 14 27 The Demand for Jet Fuel ?Price elasticity of demand for jet fuel depends on ability to conserve fuel and elasticities of demand and supply of travel ?The demand for jet fuel impacts the airlines and refineries alike ?The shortrun price elasticity of demand for jet fuel is very inelastic 169。2020 Pearson Education, Inc. Chapter 14 25 The Demand for Jet Fuel ?Jet fuel is a factor (input) for airlines ?Cost of jet fuel ?1971 – Jet fuel cost equaled % of total operating cost ?1980 – Jet fuel cost equaled % of total operating cost ?1990’s – Jet fuel cost equaled % of total operating cost 169。2020 Pearson Education, Inc. Chapter 14 23 Industry Demand for Labor MRPL1 Labor (workerhours) Labor (workerhours) Wage ($ per hour) Wage ($ per hour) 0 5 10 15 0 5 10 15 50 100 150 L0 L2 120 MRPL2 DL1 Horizontal sum if product price unchanged L1 Industry Demand Curve DL2 Firm Industry 169。2020 Pearson Education, Inc. Chapter 14 21 MRPL1 MRPL2 Factor Input Demand – Many Inputs Wages ($ per hour) 5 10 15 20 Hours of Work 0 40 80 120 160