Sage-Tips

Is marginal factor cost equal to wage?

It is expressed in currency units per incremental unit of a factor of production (input), such as labor, per unit of time. In the case of the labor input, for example, if the wage rate paid is unaffected by the number of units of labor hired, the marginal factor cost is identical to the wage rate.

How do you find the marginal factor cost of labor?

Marginal factor cost, abbreviated MFC, indicates how total factor cost changes with the employment of one more input. It is found by dividing the change in total factor cost by the change in the quantity of input used.

What is marginal cost of Labour?

The marginal cost of employing labour is the change in total labour costs from employing one extra worker.

What is the difference between MRP and MFC?

The profit maximization condition for firm A requires MFC = MRP. By definition, MRP = MR.MP and in a perfectly competitive market P = MR. Therefore, MRP for firm A is given by: MRP = (6)(8) = $48 and from the profit maximization condition, we get MFC = $48. Thus, for firm B: MFC = $48 = MRP = MR.MP = MR.

Why does a monopsonist’s cost of labor exceed the wage rate?

A. The monopsonist’s supply curve is the industry supply curve; thus, to hire more labor, it must pay a higher wage rate. Also, the MFCMFC is greater than the wage rate, and because the monopsonist hires the quantity of labor at which MRPMRP is equal to MFCMFC, it follows that the wage rate is less than MRPMRP.

Do Monopsonies hire less workers?

In other words, under monopsony employers hire fewer workers and pay a lower wage. While pure monopsony may be rare, many employers have some degree of market power in labor markets. The outcomes for those employers will be qualitatively similar though not as extreme as monopsony.

Why does a Monopsonist’s cost of labor exceed the wage rate?

Is MRC and MFC the same?

Marginal Resource Cost (MRC): Sometimes called Marginal Factor Cost (MFC) is the firm’s cost of hiring more workers. In a competitive labor market, the MRC will be the equilibrium wage. A firm will hire workers as long as the MRP is greater than the MRC.

How does wage rate affect marginal cost?

What happens if wages rise? Well, wages affect the marginal cost, the average variable cost, and the average total cost. If wages go up, we will see that each of these cost curves will have to rise to reflect new higher costs from higher wages. In fact, all of the cost curves will shift up together.

Why does marginal cost of Labour increase?

The price of the firm’s output: Since the price of the output is a component of MRPL, changes will shift the demand curve for labor. If the price that a firm can charge for its output increases, for example, the MRPL will increase.

Is Marginal cost the same as marginal revenue?

For any given amount of consumer demand, marginal revenue tends to decrease as production increases. In equilibrium, marginal revenue equals marginal costs; there is no economic profit in equilibrium.

How do you calculate marginal factor cost from a table?

The marginal factor cost is the change in the total factor cost divided by the change in the factor of quantity. Calculate the change (or difference) in the total factor cost. The total factor cost is the total cost incurred by the business from the use of a given resource.

How do you find the equilibrium price of Labor and capital?

Thus it reaches equilibrium (or the point of optimum purchase of labour and capital) where the MRP of each factor is equal to the price of the factor. P L /MP L = P K /MP K = MR (by substituting MPP by MP of both L and K) or, Price of labour/ Marginal product of labour = Price of capital/ Marginal product of capital = marginal revenue.

What is the demand curve for labor in an imperfect market?

With imperfect market 0 < e L < ∞ and MFC > AFC (except where labour supply curve is backward bending in which case MFC < AFC became e L < 0). As the monopolist has no supply curve for its product the monopsonist has no demand curve for labour or, to be more accurate, the demand curve consists of a single point.

What is the effect of minimum wage laws in a competitive?

In short, the effect of minimum wage laws in a competitive labour market is to reduce employment or increase unemployment. If labour markets are monopsonistic in nature, the effect may be increased employment.

Why is the MRP curve of labour below the VMP curve?

In Fig. 26.1 the MRP curve of labour lies below the VMP curve. This is because VMP = P. MPP L and MRP L = MR.MPP L. It is clear that for a given wage rate, the monopolist will hire less labour than if he behaves like a competitor.