Factors of production, Microeconomics

The process of production needs several inputs. These inputs are known as the factors of production. In most cases, firms own some of the factors of production while some have to be bought from the market. For example, POSCO Ltd may own the factory buildings and machines necessary to produce steel but it has to purchase the services of workers from the labor market.

The analysis of a factor market in general follows the same principles we have seen in case of commodity market but there are certain distinguishing features. The demand in a factor market is derived demand. The demand for the input is derived from or depends on the demand for the output it helps produce. If the demand for steel in the world market increases, POSCO Ltd will want to increase its production. To do so, it could hire more workers, i.e., raise its demand for labor.

There are 4 possibilities for a firm:

1. It can be a perfect competitor in the product market as well as a perfect competitor in the factor market.

2. It can be a perfect competitor in the product market but not in the factor market. For example, a rice mill in a village could be sole employer for the villagers. There could be different brands of rice being sold in the village. A single buyer is known as a monopsonist.

3. A perfect competitor in the factor market but not in the product market. For example, a locality with one electricity supplier. This firm has monopoly in the product market. However, it is one of the many firms demanding the services of engineers.

Posted Date: 3/13/2013 1:15:26 AM | Location : United States







Related Discussions:- Factors of production, Assignment Help, Ask Question on Factors of production, Get Answer, Expert's Help, Factors of production Discussions

Write discussion on Factors of production
Your posts are moderated
Related Questions
Zac consumes only pizza and chianti. He consumes these goods in fixed proportions: 2 slices of pizza for one glass of chianti. His income is $100 per week. a. Derive demand func

Benefits of Education The returns a person/society (state/government) gets from acquiring education is referred to as benefits from education. If such returns are paid/receive

Question: (a) Long Run Incremental Cost (LRIC) is considered as the "gold standard" for setting interconnection charges. Discuss the strengths and weaknesses of the three ap

Terms of Trade: The ratio of average price of a country's exports, to average price of its imports, is its terms of trade. Theoretically an improvement in a country's terms of trad

Explain welfare grants and subsidies

You are a member of a problem solving group that is concerned with incidents involving losses with their information system (IS). Let us assume that IS loss events can be grouped i

E-COMMERCE ? Electronic commerce or e-commerce refers to a large range of online business actions for  services and  products. It in addition pertains to "any type of  business

AGRICULTURAL GROWTH AND PRODUCTIVITY TRENDS: Despite a steady decline in the share of agriculture in the Gross Domestic Product (GDP) of India, this sector continues to remain

PRODUCTION AND PRODUCTIVITY DIAGRAM BEHAVIORAL RELATIONSHIP

Factors of Production :   The factors of production are the resources that are essential for production. They are usually separated into 4 dissimilar groups: Land - all natu