Factor Markets Glossary

A market with one buyer and one seller of a factor. Wage outcome is indeterminate, depending on bargaining power.

Demand for a factor of production that comes from (is derived from) the demand for the product it helps produce.

As additional units of a variable input are added to fixed inputs, the marginal product of the variable input eventually decreases.

Payment to a factor above its transfer earnings (opportunity cost). Greater when factor supply is more inelastic.

An organization of workers that collectively bargains with employers for wages, benefits, and working conditions.

Cost minimization condition: MPL/PL = MPK/PK. Equalize marginal product per dollar across all inputs.

Additional cost of hiring one more unit of a factor. Equals the wage in competitive markets; exceeds the wage for a monopsonist.

Additional output from hiring one more worker, holding other inputs constant. Declines due to diminishing marginal returns.

Additional revenue from hiring one more unit of a factor. MRP = MPL x MR. The firm's factor demand curve.

A market with a single buyer of a factor. Results in below-competitive wages and employment.

Minimum payment needed to keep a factor in its current use. Equals the factor's opportunity cost.

MPL x P. Equal to MRP in perfect competition; greater than MRP under monopoly.