1. MFC M All Machines 1 Company Machine a) b)i) No Change in shape of MP curve for machines. The “efficiency” of machines is not related to the demand for outputs. ii) MRP m will decrease (shift left). Demand for factors of productions (inputs) is derived from demand for outputs (product market ) End Result: Quantity of machines falls & price remains the same! (PRICE TAKER for machines) c ) MP L /Price L = MP M /Rental Price M LEAST COST RULE : R atios must be equal => 28/14 = 60/r. So r = $30 2010 Free Response #1 MRP M

2. Number of Workers Marginal Revenue Product per Day 1$450 2$500 3$450 4$400 5$300 6$100 MP L 90 units 100 units 90 units 80 units 60 units 20 units a)90 units => since MRP = MP X P output => MP = MRP/ P output $450/$5 = 90 units for 3 rd worker b) With hiring of 3 rd worker MP falls from 100 => 90 units c) $300 for 5 th worker. Highest wage = MRP for each worker d) Indeterminate: Falling output price => MRP shifts left => hire less workers Rising MP L => MRP shifts right => hire more workers FREE RESPONSE #2

3. e) Machine workers are available at $25 per hour All market structures are wage takers and pay $25 per hour (MFC curve) Since a competitive industry produces more output, their MRP Curve must be to the right of a market power industry FREE RESPONSE #2 Continued Entire Industry Factor Market