Sides Game

Diminishing returns begin with worker # 3 Workers Paperclips 0 0 1 20 2 42 3 60 4 65 5 66

MPP of worker #5 = 1 Workers Paperclips 0 0 1 20 2 42 3 60 4 65 5 66

Wage = $10 Clips P = $1 MRC (MFC) of worker #2 = $10 Workers Paperclips 0 0 1 20 2 42 3 60 4 65 5 66

The change in TR with the addition of one more unit of input = MRP

Maximizing Profit The last worker increased TPP 20 units The last unit of capital increased TPP 30 units The labor wage is $20/day The capital interest is $30/day Product price is $1 The firm should keep things as they are. MRP/MRC of Labor = MRP/MRC of Capital = 1

Demand in the factors market is dependent on demand for the factors final product in the products market. This is called derived demand.

A product market monopoly has a steeper MRP curve than a firm selling its output in a perfectly competitive market.

An increase in worker productivity will (increase or decrease) a firm’s demand for workers. Increase because it increase MRP

The MRP curve is downward sloping, even for firms in a perfectly competitive products market, because of the law of diminishing marginal returns

Why is MFC above S? Monopsonies must increase the wage for all workers to increase the quantity supplied of labor

A price increase in the product market will cause a demand increase in the factor market.

Wage = $10. Clips P = $1 How many workers should firm hire Wage = $10 Clips P = $1 How many workers should firm hire? 3- anymore and MRC >MRP Workers Paperclips 0 0 1 20 2 42 3 60 4 65 5 66

Only one buyer monopsony

An increase in the supply of labor will do nothing to the demand for labor. It will increase the QUANTITY DEMANDED

Profit-maximizing quantity of labor… MRP = MRC (MFC)

If MRC (MFC) is greater than MRP, the firm should Hire some Fire some

What type of Labor Market? Monopsony

What are the TWO reasons that a product monopoly’s MRP curve is downward sloping? Diminishing returns Firm must decrease price to sell more units

Minimizing Cost The last worker increased TPP 20 units The last unit of capital increased TPP 30 units The labor wage is $40/day The capital interest is $75/day The firm should increase labor and decrease capital Labor = .5 units per dollar Capital = .4 units per dollar

Payment for a resource above the necessary payment for its employment is called Economic rent

In perfectly competitive labor markets, minimum wages cause A surplus of labor

Wage = $10 Clips P = $1 MRP of worker #4 = $5 Workers Paperclips 0 0 1 20 2 42 3 60 4 65 5 66