Chapter 18

Chapter 18 talks about the factors of production, which include land, capital, and labor. To make a hiring decision, a firm must consider how the size of its work force affects the amount of output produced. The diminishing marginal product is that as the numbers of workers increases, the marginal product of labor declines. The theory of neoclassical production is that the amount paid to each factor of production depends on the supply and demand for that factor. The marginal revenue product is the extra revenue the firm gets from hiring an additional unit of a factor of production. The value of the marginal product curve is the labor-demand curve for a competitive profit maximizing firm. A competitive profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage. Changes in taste, changes in alternative opportunities, and immigration causes the shifts to the labor supply curve. Any event that changes the supply or demand for labor must change the equilibrium wage and the value of the marginal product by the same amount. This is because these must always be equal. Capital is used to refer to the stock of equipment and structures used for production. The economy's capital represents the building up of goods produced in the past that are being used now to produce new goods and services. Labor, land, and capital each earn the value of their marginal contribution to the production process. Since the factors of production are used together, the marginal product of any factor depends on the total quantities available. I thought that the case study of the Black Death was helping in understanding the topics covered in this chapter.