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Microeconomics
Mónika Kis-Orloczki
Assistant lecturer
Definitions
• Input=resources/factors of production: Goods
or services that are used by the companies to
produce certain products.
• Factors of production: A, L, K, E
• According to their origin can be:
– Primary resources: don’t evolve from economical
reasons but they can be used in the economy (L, A)
– Secondary resources: evolve from economical
reasons (K, E)
• In the output market (market of products) the
consumer=demand, the companies=supply
• In the input market the company=demand for
the resources of the housholds (labour) and
pays for it (wages)
Output market
S
D Products and
services
Households Company
S D
Resources or factors
of production
K, L, A, E
Demand of the resources
• The demand of the resources depends on the
quantity of the output of the company.
• Derivative demand: the company seeks for
inputs to fulfill the consumers’ requirements in the
output market to make his own profit in short run,
but to ensure at least the normal profit in long
run.
Optimal input employment
• Output market
• It is worth increasing the production until the
cost of the increase in the output reaches the
revenue of the subsequent output: MC=MR
• Input market
• Worth increasing the employed quantity of
inputs until the cost of the subsequent input
reaches the revenue of the subsequent input:
MFC=MRP first criteria of the optimal
input allocation-general condition
• Marginal Factorial Cost (MFC): shows the
changes in the total cost if the amount of an input
is changing by one unit.
PL=MFCL=MRPL=VMPL
Individual input demand curve
• Shows the connection between the price and the
demanded quantity of the input.
• The optimal input employment is where the input
price equals with the VMP
As P is constant the MPL determines the shape of the
curve
• MRPL=VMPL shows the demand of a profit-
maximising company for the input at different input
prices PL= MRPL=VMPL is the inverse demand
curve of the input
• Defined only in the decreasing part of the curve
APL
L
MPL
PL
L
Demand of the monopoly in a
competitive labour market
• Output market: monopoly, input market: competitive
PL=MFCL=MRPL<VMPL
Exploitation of
the monopoly
SV P
PL
VMPL
MRPL=DV MR D
L* Q
q0
Monopsony
• One buyer and many sellers input market: monopoly,
output market: competitive
• In the OUTPUT market: MR=P MRPL=VMPL
• Profit max: MFCL=MRPL
• In the INPUT market: monopolycan inluence the P
SL input supply increasing curve
PL<MFCL=MRPL=VMPL
• A monopsony has no input demand curve as there is no
clear connection between the input price and the
demanded quantity
OUTPUT MARKET
Competitive Monopoly
Competitive
MONOPOLY
INPUT MARKET
PL=MFCL=MRPL=VMPL PL=MFCL=MRPL<VMPL
MONOPSONY
Monopoly
PL<MFCL=MRPL=VMPL PL<MFCL=MRPL<VMPL
The personal labour supply
• Labour market: the owner of the labour is the seller and
the company is the buyer
• The personal labour supply depends on:
– The income needs to get consumption goods (income constraint)
– The needs of leisure time Factors of
living
quality