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Marginal Product of Labor (MPL)
- additional stuff from another worker
- Change of quantity over change in change in labor
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wage
MPL times price=price
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marginal productivity theory of factor price determination
wage is the marginal revenue product
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Marginal Revenue Product of Labor
- How much revenue one more worker gets you
- Change of total revenue over change in change in labor
MR(price in perfectly competitive)*MPL
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relationship between MRPL and wage
- MRPL> w, additional worker increase profit
- MRPL< w, additional worker decrease profit
- MRPL= w, current # max profit
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Demand for labor curve shifts with change in
- -tech that change production
- -price of product produced
- -# of firms that produce product
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Hiring principle
- Hire until MRPL= wages
- demand for labor- companies that hire
- supply for labor- workers themselves
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Substitution Effect
Work increases when wages increase because opportunity cost of leisure increases
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Income effect
Work less when wage increases because you're richer and buy more (nominal goods) "free time"
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Backward bending Labor supply curve
Sub effect dominates the bottom to middle portion
Income effect dominates near the top portion
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Oligopoly
- smaller number of sellers
- output depends on what everyone else does
- Shift demand curve by quantity provided by competitor in market
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Comparison to perfectly competitive and monopolistic
Pm>Po>Pp
Qm<Qo<Qp
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Nash Equilibrium
outcome where no party/player wants to change their strategy
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Dominant Strategy
play regardless f what competitor does
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Prisoner's dilemma
rational strategy of self interest result in inferior/ inefficient outcome for both
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Monopoly
- price setter
- set MR=MC and then go up to demand curve
- profit bounded by demand and ATC
- Marginal Revenue is half as steep as demand
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Monopolistic Competition
- Monopoly with entry of firms
- profits must be zero in LR eq'm
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Downward sloping demand curve
- Product differentiation
- prices must be lower in order to sell more
- prices must be higher to sell less
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Transition to LR
- entry shifts demand left
- exit shifts demand right
- keep happening until posit=0 when P=ATC
- demand and ATC must touch
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Price Discrimination
- 1st degree- No consumer surplus b/c price set to marginal benefit
- 2nd- monthly fees and usage fees (cell phone plans)
- 3rd- Student discounts
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Low world Price
gain in consumer surplus & loss in producer surplus= gain from trade
Difference in quantity= amount imported
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High world price
loss in consumer price & gain in producer surplus= gain from trade
difference in quantity= amount exported
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Tariff
- tax on good, raise price and loss in consumer surplus
- less will be imported
- 2 triangle of DWL
- rectangle= government revenue
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Quota
- Limit on quantity, difference between quantity is quota
- higher price, lower quantity
- 2 triangle DWL, rectangle=license holder surplus
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