19.1 The Demand for A Factor of Production

MyEconLab Concept Video

We begin our study of factor markets by learning about the demand for factors of production, and we use labor as the example.The demand for a factor of production is a derived demand—it is derived from the demand for the goods and ser­vices that it is used to produce. You’ve seen, in Chapters 15 through 18, how a firm determines its profit-maximizing output. The quantities of factors of production demanded are a direct consequence of firms’ output decisions. Firms hire the quantities of factors of production that maximize profit.

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