1. Sides Game

2. Diminishing returns begin with worker # 3
Workers Paperclips

3. MPP of worker #5 = 1
Workers Paperclips

4. Wage = $10 Clips P = $1 MRC (MFC) of worker #2 = $10
Workers Paperclips

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

6. 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

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

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

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

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

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

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

13. 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

14. Only one buyer
monopsony

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

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

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

18. What type of Labor Market? Monopsony

19. 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

20. 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

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

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

23. Wage = $10 Clips P = $1 MRP of worker #4 = $5
Workers Paperclips