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.