Next Exam !

Exam 6 Thursday December 26

!

Chapters 18, 19, 20 and 21

Microeconomics Lecture 18

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Factors of Production

Price Discrimination !

Charging different people a different price for the

same product

Price Discrimination !

Make more money by capturing buyer surplus

!

Very hard to do !

Keep buyers from buying low and reselling higher to other customers

Riyadh Pizza CompanySaudi Style Supreme

Marginal Cost 29

0

10

20

30

40

Ali Abdullah Ahmed Faisal Mohammed Mahmood Sultan Turki

2628

3032

3436

3840

Profit Per Pizza 30 -29 = 1

Total Profit 6 x 1 = 6

Total Revenue 6 x 30 = 180

Total Cost 6 x 29 = 174

Total Profit 180 - 174 = 6

Price Marginal Revenue 30

Perfect Competition Keep selling as long as marginal revenue is more than marginal cost

Cannot charge more than 30 or buyers go to competitor

Riyadh Pizza CompanySaudi Style Supreme

Marginal Cost 29

0

10

20

30

40

Ali Abdullah Ahmed Faisal Mohammed Mahmood Sultan Turki

2628

3032

3436

3840

Monopoly with Price Discrimination

Charge different prices to different customers

Keep selling as long as marginal revenue is more than marginal cost

Profit Per Pizza Varies

Total Profit Add each profit

Total Revenue 210

Total Cost 6 x 29 = 174

Total Profit 210 - 174 = 36

Perfect Competition

Monopoly Price

Discrimination Difference

Price 30 30 - 40 up to 10

Qty 6 6 6

Total Revenue 180 210 30

Total Cost 174 174 174

Profit 6 36 30

Riyadh Pizza CompanySaudi Style Supreme

Humantrust knowledge skills

personality health relationships

ideas technology methods

Value Creatorentrepreneur

innovator team

organization

Physicalnatural resources time buildings equipment things than make things

Cultural

Intellectualmoney and risk savers - borrowers time is money

(1+r)n

insurance limited liability corporations

trust values institutions infrastructure rules !

Creating Value with the Five Capitals

Financial

Factors of Production

Labor market

Innovation - Productivity

Wage Level

Quantity of Labor

Professional Soccer Players

School Teachers

$36 million 135 million SAR

Derived DemandDepends on demand for another good the factor

produces

Marginal Product of Labor

How much more output with one more worker

Revenue not

Output

Marginal Revenue Product of Labor

How much more revenue with one more worker

EmployeesTotal

Output

Marginal Output Product

Marginal Revenue $1 each

Marginal Cost $10

Marginal Profit

0 0 - -

1 19 19 $19 $10 $9

2 40 21 $21 $10 $11

3 57 17 $17 $10 $7

4 72 15 $15 $10 $5

5 80 8 $8 $10 -$2

Marginal Revenue Product of Labor

versus Cost of Wage

Demand for Labor

Human Capital Technology

Price Inputs Firms

Supply for Labor

Population Demographics Alternatives

Wage Level

Quantity of Labor

L1 L2

Supply

Demand

$15

$10

Increase in Demand

Wage Level

Quantity of Labor

Q1 Q2

Supply

Demand

15

10

Increase in Supply

Economic Discrimination

Difference due to irrelevant characteristic

Wage Gap

Education Experience Preferences

Discrimination is

Expensive

Compensating Differentials

95% of job-related deaths are men.

America’s 10 Most Dangerous Jobs

Per 100,000

Average 3.3

Fishing 200

Logging 62

Pilot 57

Farm & Ranch 36

Roofers 35

Ironworkers 30

Sanitation 25

Machinist 19

Truck Driver 18

Construction 18

Source: Bureau of Labor Statistics