Wednesday, November 30, 2011

Mono-Comp in Long Run

Economists debate about profits in the long run for a monopolistically competitive market.  I think that profits will continue as long as the business can differentiate their product.  Today, the WSJ had an article about Colin Hagendorf's quest to try every pizza in Manhattan.  First some facts.

According the the WSJ, in 1958 there were 117 pizzerias in New York with only 10 in Manhattan.  By 1970, the number had surged to 861.  Currently there are 1,686 restaurants selling pizza as the main entree with 425 more selling the pizza pie at grocery stores and convenience stores.  The number of entrants should have pushed the profit margin to zero.

I point to the forty years of data as proof that profits continue in a mono-comp industry as products are differentiated by more than just the product.  Such things as how close the product is to the consumer, quality, service, atmosphere, and cozy relationships with the owners of the stores combine to ensure profits in the long run.  I think 40 years is long enough to gather data sufficient enough to make my point.

Paternalism and Free Market

Let's take a hypothetical case.

A patient walks into the oral surgeon's office in severe pain.  She is in so much pain that she can hardly bear another minute.  She tells the doctor that she would like to have all of her teeth extracted.  The doctor just can't pull out all of her teeth without conferring with her general dentist, so the oral surgeon calls the general.  The general says that he thinks he can save the lower teeth and build a bridge.

What should be the outcome?  Should the patient be able to have all of her teeth extracted and be free of the pain?  Or does the doctor with years of experience be able to decide what's best for the patient?

In economics, it is an assumption of the model that the patient has more knowledge of what they want than the doctor.  The patient should be able to decide.

In the states, we believe that freedom of choice is paramount to our inherent individual rights.  To have the doctor decide what's best for us is contrary to that right.  If the patient would listen to the doctor's logic and make an informed decision, then that decision is within the patient's freedom of choice.

Yet, why is it that we expect people in authority to make decisions that is in our best interests?  We expect teachers to know what is relevant to teach?  We expect law makers to enact legislation  that protects the general welfare.  If we hold free of choice to be an inalienable right, why do we give it away so easily?

One reason is that the cost and responsibility of the choice falls on another.  Another reason is that people really want to be told what to do.  In both of these cases then, is it any wonder why the market economy is falling to a socialist one?

Reacting to Sunk Costs

Economists often say that sunk costs are irrelevant to decision making.  A sunk cost is a cost acquired in a prior period that should have no relevance in the current period.  An example might be sitting through a movie until it is over even though it's the worst movie you have ever seen.  If you ever have driven to a store in search of an advertised product only to find that the product wasn't there then bought something else, you might have reacted to sunk costs.  As a behavior, sunk costs are hard to ignore.  Here's an example from my personal life.

I have a wrestler who wants to quit for many reasons.  Everyone but me are telling him he can't quit.  I say that everyone is reacting to sunk costs.  I believe the wrestler would be better off quitting because his utility would be higher and right now, wrestling is bringing disutility.

We all hear stories about great people who have overcome adversity in their lives and thought about quitting only to have a breakthrough that brought greatness.  My old wrestling coach used to say that "once you quit, it becomes a habit."  I believe that quitting is rational given the costs and benefits.  I often quit eating or watching television when I experience disutility.  Why should quitting a sport be any different?

Sunday, November 27, 2011

Daily Review -- Excess Capacity

Montolli's Pizza is a restaurant in a big city where there are 1,000 pizza places.  Montolli's differentiates itself by having a white sauce instead of a tomato sauce in an atmosphere of old Sicilian Italy.

In this example, the price of a pizza is $6.50 and the firm makes 400 pizzas a day.  At that output, the ATC is $5.50. Explain how this mono-comp firm has excess capacity.

The firm has excess capacity as shown by the productive efficient point of $5.  At $5 the firm would operate where a perfect competitor would, but with a downward sloping demand curve, this point is unattainable for the firm.

What this means is that Montolli built his restaurant so large that there was always an empty seat.  A table is a capital good and a fixed cost.  The downward part of the ATC curve shows how fixed costs are spread out over a range of output.  Since the ATC at profit max is higher than the marginal cost, the firm must be on the downward sweeping part of the ATC dissipating fixed costs.  Thus the firm has excess capacity.

Let's generalize and say that any time P > MC resources are inefficiently used. For this firm P = AR = D.  

Saturday, November 26, 2011

Daily Review -- Externalities

This cartoon from shows that the value of the good increases as there are more users.  What is the name economists give to this concept?

The answer is: Network Externality.  A cell phone has little or no value unless the user has contacts.  The more contacts a user has, the more valuable the phone.  The same is true with a fax machine, online dating site, or a virtual game.

In the case of Facebook, the application reach a critical mass and the app became a rage.

The Daily Review is written to feed into my FREE app found here.

Look for Exam Cram for the Kindle Fire in December.

Thursday, November 24, 2011

Daily Review -- Mono

This is from my coloring book and is simple for Thanksgiving.  On the graph label each curve.  Shade the areas of profit in money green and dead-weight loss in red. For time wasters color the tag artist.  Key follows.


How Choices Determine Outcomes

This cartoon was posted on by kurtu.  I think this toon shows how choices in the use of consumption activities determine the outcomes.  I think it would be hasty to apply a normative standard and conclude that the couple on the right are happier.  In fact, I would go as far as to say that both couples are equally happy.  The two neighbors might argue because their values clash.

What would John Stuart Mill say?  I think he would say that the actions of the neighbors should be regulated if their actions hurt others.  The noise from the lawn mower might interfere with the quite enjoyment of the neighbors reading.  The weeds from the neighbors on the right might creep into the yard that is being meticulously maintained.

Would society think that the neighbors on the deck relaxing are an "eyesore" and pass a law to make them maintain their yard?

I think the only conclusion that one could arrive at is that the individual actions of the parties lead to different states of consumption in a future period.  The outcomes have to be evaluated on an individual level of the parties involved and not the reader.

Tuesday, November 22, 2011

Daily Review -- Natural Monopoly

1.  If the monopoly is unregulated, what will be the monopoly price?
2.  What is the perfect competition price?
3.  What is the approximate "break-even" price?

Answers: $8; $5.20; $4.20.

At the break-even price, the natural monopoly is making a profit of $2.20 per unit.  Since the monopoly could be a public utility that serves the public, is this ethical? 

My answer is "Yes."  The police department issues tickets that generates revenue for the city that can be used to pay salaries or educate the police force on better protection techniques.  Allowing a public utility to make a profit might be an incentive to invest in wind and solar energy.  If the monopoly is allowed to break even at $4.20, there may not be any incentive to hold down costs.  Thus, you might see the CEO buying the most expensive desk or the least fuel efficient cars. This particular monopoly would not need a subsidy to remain open. 

Sunday, November 20, 2011


Have you ever had to carry in to your work or home groceries or laundry?  Do you find yourself carrying a briefcase of a purse so that you can have all of the essentials with you at all times?  What do you carry in your backpack?

Keeping our things close to us brings us utility.  Moving the goods from place to place as we move is logistics.  It makes sense, then, that supply chain managers describe this behavior as place utility.  I have always said that if you want to make a million dollars, invent a better way of carrying things.  Wheels on the bottom of luggage is one example of this invention.  Carrier bags for laptops are another.

Do you think that technology such as cloud storage is an attempt to reduce the movement of goods and might contribute to utility because your hands are free to do other things?  For example, Bluetooth technology for receptionists?  Another example, miniaturization of computers.

Until our food comes in a tablet and we wear the same clothes that never get dirty, if one can invent a way of moving these goods, one will become rich.

Daily Review -- Monopoly

This is for class on Monday to review monopoly market structure.

1.  What is the price that the monopoly charges?
2.  How much profit per unit does the firm make?
3.  What is the area of consumer's surplus?
4.  How much is total revenue?
5.  How much is total cost?
6.  How much profit does the firm make?
7.  If the firm were a perfect competitor, what would be the price and output?
8.  Find the socially optimal price.  At this price is the firm making a profit?
9.  Identify the firm's supply curve.
10.  If the firm can price discriminate, what will be the total revenue earned by the firm?
11.  What is the "Fair Return" price?
12.  If the firm was a perfect competitor, would the firm be making a profit?
13.  Is the monopoly in the short-run or long-run?
14.  What is one barrier to entry that allows the firm to keep its monopoly power?
15.  The price curve can also be identified as the __________ curve and ____________?

1. $7.50; 2. $3.50; 3. $2.5= 1/2(2*2.5);4. TR = $15; 5. TC = $8; 6. Profit = $7;  7. PC Price is about $6.5; 8. The socially optimal price is also the resource allocative price of $7.5.  At the SOP the firm is making a profit; 9. There is no supply curve;  10. If the firm can price discriminate, it'll make a little more than 2.5 units;  11. the fair return price is about $6.5;  12. If the firm were a PC, it would be making a profit; 13. A monopoly is always in the long run; 14. one barrier would be a patent, copyright, economies of scale, or exclusive ownership of a resource;  15. the price curve is also the demand curve and average revenue curve.

Now go relax or workout.

Two Sides of the Moon

Honor Thy Father

           Hatun looks out of the window over a world in cultural conflict.  The crescent moon reflects on the window washed in a red glow where Hatun Anyur Surucu looks over a world so different than her world.   Hatun is a Sunni Muslim raised in a world governed by ancient rules, customs, and social norms.  Hatun has to decide whether to stay or leave.  If Hatun stays, her life will follow these rules.  If she leaves, she risks death.

The moon beam, or Anyur in Turkish, lights the path as Hatun leaves her crowded apartment.  The Turkish word for path is Sunni.  As Hatun opens the door to a new world and closes the door on an ancient world behind.    

This is the except from my monograph on honor killing inspired from the David Gould's documentary film, Two Sides of the Moon.  This monograph will use economic tools to analyze complex social customs.  This book will consume most of my writing time. I will post on this blog parts of the manuscript for your review.

Supply and Demand

Here is how I explain the mechanics of supply and demand.

Look for this content on my new app for the Kindle Fire to be released by the end of the year.

Saturday, November 19, 2011

Wall Street Protestors

This is exceptional.

There is an old saying in credit markets that goes, "Those who don't need a loan are the only ones who can get one."

"PASS" Protection

A new play that should be added to the Penn State playbook.

As a head coach of a Big Ten team, I think it would be impossible to know everything that goes on with your team members and coaches.  I'm sure that every team covers up wrong doings in order to win games.  In this crude cartoon, I want to say that there would be no passes made at young men taking showers any more.  It probably does not pass as much of a cartoon either.

Thursday, November 17, 2011

Free Lunch?

Students can sign up for Facebook in seconds and it's free.  Students can post photos and chat with friends all day long on their cell phones or on desktop computer.  The world wide web makes almost all information free with the right search engine.  For Windows, users the threat of a virus can ruin a computer.  Also surfing on the web can leave cookies that allow advertisers to target ads to select audiences.  For many internet users, the threat of invasion of privacy is a real concern.

Economists like to say there is "no such thing as a free lunch" meaning that there's opportunity cost in every decision even those decisions where money doesn't change hands.  But the web provides a seemingly free pass to content where the costs are hidden.


In some urban areas, children still drink tap water drawn from wells that have lead pipes.  A colleague asks how is this fair?

As citizens become wealthier, they move away from the cities to the suburbs.  The tax base in the cities decline and so infrastructure isn't maintained.  Urban flight takes a toll on those left behind with no choice but to endure hardship.  My colleague is right that this urban flight is undesirable and unfair.  My answer to her was that it's impossible to have perfect equality among all of the choices.  For example, income equality, human rights, equality among wealth, and equal access to resources.  When one makes a choice to pursue income equality then those choices involving income equality affect the other areas of equality as well.

I also know that those with wealth can influence policy and by influencing policy contribute to inequality.  Economists would say that those whose actions are intended to protect their best interests are rent seeking.  So those with power to begin with use their power to stay in power.  This is a solid rebuttal.

Sunday, November 13, 2011

Occupy Wall Street

Here's my next editorial in the Muscatine Journal.  I offer apologies to Freakonomics and Marginal Revolution for their inspiration.

With so many protests such as occupy Wall Street and occupy Main Street, one has to wonder what point the protestors are making.  Are they disgruntled about income inequality, wealth inequality, inequality to resources, inequality of opportunity, or equality of rights?   When news reporters interview occupy demonstrators, they fail to arrive at a consensus at the reasons for their demonstrations. 

Every year I start my classes with high expectations and enthusiasm that this year will be the year.  Each student comes in with a fresh start.  All students begin the year with the same grade that was equally distributed.  All students line up at the same starting line.  Within three weeks, I notice that there are students who leading the pack while there are others who haven’t even warmed up yet.  They all start at the same time, but don’t stay together throughout the semester.   Would it be fair to take Angie’s points that she earned and give it to Bert who doesn’t have any because Bert has been playing on Facebook, playing football, or busy with outside activities?

We all have different abilities, interests, goals and the like.  Over time, these differences manifest themselves in differences in income and wealth.  Where we start at in a race does matter as anyone who runs the Bix knows.  But why should we arbitrarily redistribute income right now?  Would this redistribution help the economy grow and give equal opportunity to all members of the United States?  If this would revive the health of the economy, then I would agree with it.  But before you quickly dismiss this issue, consider the next point.

For anyone who thinks the 99% are right should consider this.  Suppose the 5% of American earners who earn 95% of the income in the world have to give the income to the rest of the citizens in the states who don’t earn as much.  Would this be fair?  For those of you who think this is fair, then you should know that citizens in the United States are richer than 95% of the rest of the world so give your wealth to the Ghana, India, and Vietnam.  How many of you would be willing to share your income with the rest of the world?
If that isn’t persuasive enough, then try this.  For one day, please come over to my house and work and I’ll pay you.  But after you get paid, please give your income to United Way, Salvation Army, or another charity.  Then you will understand my argument. 

When people consider the redistribution of wealth, they only look at a situation that improves their situation.  It makes sense to me that if 95% of the world is hungry, that there would be so many protestors occupying Wall Street.  If they are right, for how long?  

Daily Review -- Supply and Demand

Here's a question from my Kindle App that is still in development. 

  Digital technology has increased the access to digital data such as the time.  Consumers now find that they can find the time on their cell phone or computer screen.  What would economists predict would happen to the market for wrist watches as a result of this digital technology?

a.       ééP
b.      êéP
c.       ééP
d.      êêP

My answer is "d".  Are men and women wearing watches anymore?  I believe that professionals who work with their hands probably do, but for the vast amount of people, they use their phones to check the time.  I think this is an example of a change in preferences.  

Kindle FIRE app

You are looking at the splash screen for my next app.  This app will be an interactive app that uses the Android platform on the Kindle.

I hope to have it completed by Christmas in time to light a love of learning economics.

The app only focuses on supply and demand shifts and is intended for the beginner.

For a link to all of my apps, click here.

Friday, November 11, 2011

Daily Review -- Pure Monopoly

1.  What is another name for a "Pure Monopoly"?  2.  What is the profit maximizing price for this firm?  3.  How much will the monopoly produce?  4.  Shade the areas of: Profit; Dead-Weight Loss; Consumer's Surplus.  5.  At the profit maximizing output, how much is total revenue and total cost?  6.  At the profit maximizing output, how much is profit?  7.  If the firm were a perfect competitor, what would be the price and output?  8.  At what price would the firm be resource allocative efficient? 9.  If the firm could price discriminate, what would be the profit? 

Answers:  1.  Single-price monopoly. 2.  $4.  3. 2 units.  4.  See below.  5.  Total revenue is $8 and total cost is $4.  6.  Profit is $4.  7. Price would be $2 and output would be 4.  8.  $2 because P = MC.  9.  $6

The blue portion is consumer's surplus, the red is the dead-weight loss, and the green is profit.  For extra credit, is the firm in the long run?

Wednesday, November 09, 2011

Economics and Physics

Can physics be used to interpret economics?

That was the question Erika Henderson, a student in physics, asked me a couple of days ago.  My initial response was "YES".  Economists use dynamic models to analyze equilibrium in markets.  My own research analyzed the unemployment rate.  In the graphic to the left, the change in the Dow Jones Industrial Average is plotted.  Because the time frame is by the minute, the author concludes rightly that the changes tells us something about the market mechanism itself.  What information could be gleaned from this data?

I think that one could conclude that there are large movements into and out of the market and the sheer number would be free of influence.  The movements suggest an exogenous underlying fundamental that is not easy to observe.  One fundamental might be the market expectations or confidence.  I think that the market takes random walks and one would be foolish to use trend lines to interpret the price changes.

Physics is a discipline that would greatly improve the analysis of economics.  I hope Erika can apply more models to economics.  When I see her next, we are going to examine how game theory and evolution go together.

Tuesday, November 08, 2011

Daily Review -- Network Externality

Which of the following are network externalities?

a.  cellphones
b.  fax machines
c.  Facebook
d.  all

My answer is that "d" is the correct answer as the value of these products increase as more and more users acquire the good.  Is a blog post a network externality?  Only if the content is shared.

Click here is you would like to see this blog on your mobile Android device.

Look for a supply and demand lesson for the Kindle tablet soon.  The app will be given away to users of EconEdLink.

Lottery Tickets

Why aren't lottery tickets subject to sales tax?

When I read about the middle class paying most of the tax in what the press calls "1% 99%" I wonder who buys lottery tickets and why.  It is my opinion that the usual consumer of lottery tickets is the person who can least afford to buy one.  Buying a lottery ticket is a moral hazard and has a low marginal cost of acquisition.  Liquor and cigarettes are taxed to stop people from buying these goods that have harmful effects on the consumers.  Lottery tickets should be taxed too.

Sales taxes are a regressive tax as the percentage of income paid by the consumer is greater for a low income earner than for a high.  That's why food isn't taxed.  But the person most likely to buy a lottery ticket is a low income earner so imposing no sales tax on this consumer increases the likelihood that the low income earner will purchase a ticket.  Why does the state encourage this behavior?

By imposing a sales tax on lottery tickets, the public would get a clearer picture of who pays the tax.  In addition, lottery tickets are inelastic so a larger portion of the tax burden would fall on the buyer.

Monday, November 07, 2011

Supply and Demand; Geography of 1%

A nice interactive that teaches about surplus and shortage in micro markets is here.  You select the price and then observe what happens to market conditions.  My thinking out loud question is, how can there be a change in price when there are no changes in either demand or supply fundamentals?  In intro economics classes, teachers discuss the difference between a "change in demand" and a "change in quantity demanded".  A change in demand is a whole new demand curve while a change in quantity demanded is a movement along the curve.  How can there be a movement along the curve without a change in either demand or supply?  Micro markets assume many buyers and sellers with no pricing power.  This seems contradictory to me.

Everyone is excited about income distribution lately.  Here is an interactive on where the richest people live.

Every year I start my classes with high expectations and enthusiasm that this year will be the year. Each
student comes in with a fresh start. All students begin the year with the same grade that was equally
distributed. All students line up at the same starting line. Within three weeks, I notice that there are
students who leading the pack while there are others who haven’t even warmed up yet. They all start
at the same time, but don’t stay together throughout the semester. If we started the school year again,
I would observe the same result. Would it be fair to take Angie’s points that she earned and give it to
Bert who doesn’t have any because Bert has been playing on Facebook?

We all have different abilities, interests, goals and the like. Over time, these differences manifest
themselves in differences in income and wealth. Where we start at in a race does matter as anyone
who ran the Bix knows.

For anyone who thinks the 99% are right should consider this. Suppose the 5% of American earners who earn 95% of the income in the world have to give the income to the rest of the citizens in the states who don’t earn as much. Would this be fair? For those of you who think this is fair, then you should know that citizens in the United States are richer than 95% of the rest of the world so give your wealth to the Ghana, India, and Vietnam. (HT to

If that isn’t persuasive enough, then try this. For one day, please come over to my house and work and
I’ll pay you. But after you get paid, please give your income to United Way, Salvation Army, or another charity. Then you will understand my argument.

Income is not wealth. Wealth is savings, holding of assets such as a home or stock certificates and
bonds. Income is money earned from the operations of business. A high income doesn’t mean high
profit as farmers know because they often have costs. (HT Carl Herman link on AP lyris).

I think the argument can be summarized by a children's story of the Little Red Hen.  Those who have not developed their productive talents now want part of the income pie.  Why should they get a share?

Sunday, November 06, 2011

Daily Review -- Mono Comp

   Galaxy Burger is a local burger restaurant in long run as shown in the graph below.
1.  Using a green pencil, shade the rectangle for total revenue.
2.  Using a red pencil, shade the rectangle for total cost.
3.  Using a black pencil, label each curve and axis.
4.  Assume that the price of burger that is out of this world is $6.50 and Galaxy sells four hundred of these a day.  Calculate the price elasticity of demand.
5.  Assume that productive efficiency occurs at $5 and 700 burgers.  Prove that the restaurant is not resource allocative efficient.
6.  Since ATC is declining, MC must be below the ATC curve.  Show consumers surplus at the socially optimal price.
7.  At the socially optimal price, would the firm be making a profit or a loss?
8.  At the long run price of $6.50, color consumers surplus with a yellow pencil.
9.  At what price would total revenue be maximized?
10.  Use the fact that ATC is still declining at profit max to show the concept of excess capacity.
11.  A student in your economics class argues that as long as P > MC the firm could in total revenue by producing another unit of output.  Show this student the flaw in his thinking.
12.  Why is marginal revenue less than P?
13.  Can Galaxy Burger ever be productive efficient and resource allocative efficient?  Why?
14.  In differentiated product markets, the firm has a downward sloping demand curve.  Explain why this is so.
15.  Using an orange pencil, shade the area of dead weight loss.

The Daily Review is a feed for my FREE App for the Android platform.  The link can be found here. Two years ago I spent a summer writing a coloring book that I thought would reinforce economic concepts through visceral responses.  

Look for the tablet version of Exam Cram developed especially for the Kindle Fire by the end of December.  This app will teach supply and demand.

Daily Review -- Perfect Competition

The Wing Ding Company makes Dings in a perfectly competitive market and has the cost curves shown in the diagram.  The firm is a price taker and the price is $8.  Answer all of the questions that follow:

1.  How much is the profit per unit?
2.  How much is total profit?
3.  Is the firm in the long run?
4.  What would be the long run price
5.  Below what price would the firm shut down?

The firm earns $4 per unit for a total of $12.  Because the firm is making a profit, it is not in the long run, but would be in the long run at a price of $4.  At a price less than $2 the firm would shut down.

Saturday, November 05, 2011

Game Theory and Growth

When I lay in bed and my wife moves, I move too.  Her position changes my position.  So it is with interest rates.

If Bank A lowers their interest rate, Bank B also has to lower their rates.  Bank B's rate depends on Bank A's. This is the beauty of competition.  Competition lowers the interest rate to the rate that is socially optimal.  A lower interest rate spurs more innovation and GDP growth.

Recently, new regulation in India allows local banks to set their own rates.  Of course, the reaction to this regulatory rate change depends on the position of each investor.  If investor confidence is high, then this new law should help India growth rate increase from its 7.7% rate now.  

Thursday, November 03, 2011

Daily Review

With the economy stuck in a recessionary gap, it's time to explore some of John Maynard Keynes.  John was influenced greatly by the Austrian-Hungy War and the role of government spending to repair the economy.  His ideas were not new, but Keynes put a model to the theory.  See how well you can do on these AP Macroeconomics style questions.

15. If the MPC is .8 and the government spends 100 M and raises taxes by 100 million, what is the net amount of the stimulus?

16. Adding the MPC plus the MPS equals:
            a. 1
            b. spending multiplier
            c. tax multiplier
            d. consumption

17.  Which is true about the MPC?
            a. MPC equals dC/dY
            b. the slope of the AE line is the MPC
            c. It equals 1- MPC
            d. It’s constant at all levels of Y
            e. ALL are correct

Answer to question 15 is: $100 million.  Answer to 16 is "a".   The answer to 17 is "d".  

In the book, Grand Pursuit: The Story of Economic Genius, by Sylvia Nasar, I learned that Keynes was not the one responsible for the multiplier.  The mathematics actually came from an understudy. 

The Daily Review is a feed for my FREE Android app which you can find a link to here.

Wednesday, November 02, 2011

Is Design a Homogeneous Product?

If you walk into a Wal-Mart in Wisconsin, the layout is the same as the Wal-Mart in Denver.  Many buyers take a right as they enter a store so the high priced items are sold to the patron's right.  So if I want to compete against rivals such as Wal-Mart do I copy their design and layout?  I think I do.

Is My Computer Apps Class Adverse Selection?

I teach a class in Microsoft Office. Students come to my computer lab to learn MS Word, Excel, Access, PowerPoint, and Outlook.  The class is intended to teach basic computer skills to students who have not had exposure to computers.

Instead, I get students who are remarkable proficient.  They finish the lesson in 10 minutes then want to play a computer game or play on Facebook.  I think these kids selected this class because they knew more about their computer skills than their counselors.

Is this adverse selection?

Labor Force Participation Rate

The proportion of the total noninstitutionalized civilian population 16 years of age and over that is in the civilian labor force. The labor force participation rate is essentially the ratio of the civilian labor force to the total noninstitutionalized civilian population 16 years of age and over. The data used to estimated the labor force participation rate is obtained along with other labor force data from the monthly Current Population Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics. Labor force participation rates are also commonly calculated using data derived from the Census of the Population. 
The above is from 

I look at the labor force participation rate is the ratio of workers who want to get a job to the population.  So an increase in job seekers relative to the population will increase the rate.  A increase in population relative to the labor force will decrease the rate.  What I see in the graph above is a shrinking labor force as more and more workers drop out of the labor force but remain in the population.

This is to be expected in a recession, but the trend is continuing.  I believe this trend will continue as more and more students graduate from educational institutions without 21st Century skills.  These workforce entrants will be structurally unemployed because their skills do not match the skills demand by employers.