Vocab and Concepts
Q: Define Substitutes:
Labor and Capital can replace each other
Q: MRP is calculated by
MP * MR
Q: What direction does the slope go in?
downward/negative sloping
Q: As the demand for a good increases, the demand for workers
Increases
Q: Define marginal product
Q: Define MRC (Marginal Resource Cost)
Extra cost of hiring one more worker
Q: In a perfectly competitive market, the MFC is equal to
The market wage rate
Q: What are on the x/y axes of a labor graph?
X: quantity of labor, Y: marginal product of labor
Q: If technologies become more accessible that can replace workers, then
Fewer workers will be hired
Q: In what form/type of competition do wage/price takers exist?
Perfect Competition
Q: What is the Cost-Minimization Rule?
MPL/Wage = MPK/Rental Rate
Q: As the wage rate in a competitive labor market increases, the profit-maximizing level of employment will
Decrease
Q: What are on the x/y axes of a capital graph?
X: quantity of capital, Y: marginal product of capital
Q: In a competitive market, if the wage increases, firms hire
Fewer workers to restore MRP = MFC
Q: Define the law of diminishing marginal returns
Each additional worker adds less output
Q: In a resource market, profit-maximizing is where
MRC=MRP
Q: A profit-maximizing firm should continue to hire more individuals as long as:
MRP > MFC
Q: What do both graphs compare?
Marginal product of labor/capital per dollar
Q: When does optimal output occur?
P = MR = MC
Q: In a resource/factor market, allocative efficiency equals:
MRP = wage
Q: In perfect competition, MRC =
Wage
Q: If a firm’s MRP = $25 and MFC = $30, in order to maximize profit, the firm should
The firm should decrease its employment (reduced labor will decrease costs)
Q: What direction does the slope that represents the supply go in?
In the graph, there is no line that represents the supply.
Q: If the derived demand decreases, then the wage rate will
Decrease as demand for labor decreases
Q: In a resource/factor market, resource demand is equal to:
Derived demand