Factor/Resource/Input Markets

10%-18% of AP Test        

Derived factor demand
Demand for all inputs is "derived" or originates in the product market

Marginal revenue product-FRQ #2  2010(B)
MRP is a function of the increase in marginal revenue received by the employer for each additional unit of productivity from either an investment in capital, land, and/or labor.

A firm will hire labor as long as the MRP > Wage (MFC).  A profit-maximizing firm would employ a resource up until the MRP(VMP)=MRC (MFC).

MONOPSONY (imperfect competition)-

ACDC: Market for Labor and Minimum Wage

Perfectly Competitive Labor Market

Product vs. Resource Markets

Income is distributed to all factors of production from firms to households. Labor makes up approximately 70% of the distribution.