Other Factors of Production: Land and Capital

Alright, So we've spent most of our time talking about labor as a factor of production. Well now let's extend our discussion to land and capital as well. Alright. So first let's think about how each of these makes money. Alright, so let's see labor. We saw earned wages, right? We're earning wages when we had labor. We'll land, it's gonna earn rent and guess what? Capital also earns rent. All right, So, let's start here with land. Remember that land is the physical land on the earth, but it also includes natural resources on the land. Forest oil deposits, right? Things like that are also considered to be the land category. Right? So the demand for land, let's start with the demand for land. It's gonna depend on the value that the firm can earn from the land. Right? If this kind of goes with the labor, just like we had with labor, we had our mrp for labor. Well, there's gonna be an mrp for land, right? If we got one more unit of land, how much more money are we gonna make? That's that marginal revenue product. But now we're talking marginal revenue. Product of land. So if we bought a little more land, how much more revenue will we make? So what we're gonna see is that the demand curve for land? It's gonna be the M. R. P. Curve for land, right? So the mrp curve for land is the demand curve for land. Now let's think about the supply of land. So the supply of land is fixed for the most part, right? It's for the most part we're gonna say fixed? And we've got this famous saying by Will Rogers. Also, Mark Twain said something sort of like this, you should buy land, they ain't making any more of this stuff, right? So there's a fixed amount of this land. And we're gonna see since there's a fixed amount, right? When we had a fixed amount of something, there's one quantity, there's only gonna be one quantity regardless of the price. What situation was that? Was that elastic and elastic, perfectly? An elastic, perfectly elastic? Look on the graph, what do you think we got here? Well that supply curve is perfectly in elastic. Remember when we're in elastic were standing straight up, we're perfectly elastic. We're laying down, we feel good perfectly in elastic were standing straight up. All right? And we're gonna see it could be very close to perfectly in elastic. We don't have to go into those details were generally gonna see a straight up and down. When we talk about the supply of land, there's gonna be one quantity, this is how much land there is and it can go at any price. Right? So this is how we're gonna see it on the graph this downward demand. This is that mrp for land, right? That's the mrp of land which is equal to the demand curve. So we could do a production schedule just like we did with laborers, if we have one acre of land, how much are we gonna produce If we have two acres of land, how do we produce? Three acres? Right? And we're gonna get these M. R. P. S. For land and it's gonna make that demand curve. So we've got to supply a demand. Well, we're gonna have an equilibrium right here, and this is going to be the rental rate. This will be the rental rate of the land right here. Alright. And this would be the quantity, right? The quantity of land which is fixed. Cool. All right. So that one's pretty simple. We've got that supply which is fixed or downward demand and we find our equilibrium. Alright? So let's pause here in the next video, let's talk about capital.

Alright, let's continue here with capital. Remember, this is physical capital, not human capital. Physical capital. This is factories and equipment used to make our products. All right, So let's start here with the demand curve. This follows the same logic that we saw with labor and we saw with land. The demand curve is the mrp read the mrp, whoops M R R mrp for capital, right, mrp of capital? And how about the supply? Well, the supply curve for capital, it's gonna be upward sloping. This isn't gonna be like land where there's a fixed amount, right? The supply of capital is gonna depend on what the going wage of. Excuse me, the going rent of the capital is. So we're gonna see that we have an upward sloping supply curve in this case. Okay, It's upward sloping. So as the rental price increases, the supply um is also going to increase, Right, that supply is going to increase as well. Alright, so, we've got we end up with this standard looking graph, right? We've got that X. That we're used to and we've got going down the mrp of capital. I'll put mrp of cap and that is our demand curve. Right? So just like we did with labor or just like we could do with land, right? If we had one more unit of capital, how much extra revenue are we going to get right? Where we could have a marginal product of capital and then use that marginal product uh to calculate mrp. So it follows all the same logic that we've done with labor, where we have our production function and we get our mrp so mrp of capital, and then we've got our upward sloping, we've got our supply of capital right here, right? This is gonna be the supply and we find some equilibrium. This would be the equilibrium rent right here would be the rental rate, and this would be the quantity of capital right there. Cool. So, pretty straightforward stuff. So that's about it. Here, let's go ahead and move on to the next video.