Chapter 18: The Markets for the Factors of Production

This chapter talks about factors of production. It talks about capital which is the the economy’s stock of equipment and structures. Examples of this are profit, rent, and interest. The amount of money paid to landowners, workers, etc., depend on the supply and demand of those professions. The factors of production are the inputs used to produce the goods and services. Labor, land, and capital are the three most important factors of production. The demand for a factor of production is a derived demand. Derived demand is the demand for demand for a factor of production is derived from its decision to supply a good in another market. For example, the demand for gas station attendants is inseparably linked to the supply of gasoline. First, one has to analyze factor demand by considering how a competitive,profit maximizing firm decides how much of any factor to buy. The chapter talks about the production function which is the relationship between the quantity of inputs used to make a good and the quantity of output of that good.It also talks about marginal product of labor which is the increase in the amount of output from an additional unit of labor. Diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of input increases. The value of the marginal product is the marginal product of an input times the price of the output. A competitive, profit maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage. Another important concept is that any event that changes the spply or demand for labor must change the equilibrium wage and the value of the marginal product by the same amount because these must always be equal. The purchase price of land or capital is the price a person pays to own that factor of production indefinitely. Rental price is the price a person pays to use that factor

Chapter 17: Oligopoly

This chapter talks about oligopolies. An oligopoly is a market that has a few sellers. It is different from monopolies because they have one seller. In a monopolistic competition, there are many firms with different products. Finally, in perfect competition there are many firms with identical products. This chapter talks about the concentration ratio which is the percentage of total output in the market supplied by the largest firms. It is usually over fifty percent and includes about four firms. The chapter also talks about collusion which is an agreement among firms in a market about the quantities to produce or the prices to charge. Sometimes, collusions form cartels,which are groups of firms that act in unison. Antirust acts have been set in order to limit the cartels from forming because of the impact that they may have on society. The Nash equilibrium is a situation in which economic participants interacting with one another each choose their best strategy given the strategies given the strategies that all the others have chosen. We also learn about the game theory which is the study of how people behave in strategic situations. In general, when firms in an oligopoly choose on their own how much to produce to maximize profit, they tend to produce a quantity greater than the level produced by monopoly and less than produced by competition.