ECON 1B03 Chapter Notes - Chapter 12: Demand Curve, Marginal Revenue, Perfect Competition

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10 Dec 2018

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ECON 1B03 Full Course Notes

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Governed by the forces of supply and demand. Wage is determined by market supply and demand. When a firm decides how many workers to hire, it considers how much profit each worker would bring in. Profit from an additional worker is contribution to revenue - wage. A worker"s contribution, what she adds to the total output in terms of goods and services is mpl. The addition to total revenue of each good sold is mr. Marginal revenue product, mrp = mr x mpl: the contribution to a firm"s total revenue made by the last worker hired. Recall that mr = p in a competitive market, therfore: Each worker hired contributes less than the worker before. Mrp diminishes as the number of workers rises because the market price of the good is constant. To maximize profit, the competitive, profit-maximizing firm hires workers up to the point where w = A change in wage is a movement along the demand curve.

Related Questions

1. Which of the following is characteristic of the marginal revenue product schedule for a resource?

a. It approximates the firm's demand curve for the resource.

b. It measures the change in total revenue resulting from employing an additional unit of the resource.

c. It is determined by multiplying the marginal product of the resource by the marginal revenue of the good produced.

d. All of these are true.

2. Assume Ajax Company employs 100 workers and the total revenue is $400,000 per week. When Ajax Company employs 101 workers, the total revenue is $405,000. The marginal revenue product of the 101st worker is:

a. $40,000.

b. $5,000.

c. $405,000.

d. none of these.

3. The optimal number of workers to be hired by a firm operating in a competitive labour market is where:

a. P = MRP.

b. MP = MRP.

c. MRP = w.

d. P = w.

cerisecoyote480

1. A firm's supply curve for labor: A) is vertical for a firm in perfect competition. B) is the same thing as the MRPL for a firm in perfect competition. C) and the firm's MRPL will determine the profit-maximizing quantity of labor hired by the firm in perfect competition. D) is the same as its demand curve for labor. 2. The wage paid by a firm buying labor in a perfectly competitive market: A) is greater than the market wage. B) is less than the market wage. C) is equal to the market wage. D) increases with the quantity of labor hired. 3. A lower wage: A) has an income effect but not a substitution effect on the quantity of labor supplied. B) means a higher income for any given level of labor supplied. C) has an income effect which is always negative with respect to the quantity of labor supplied. D) has an income effect which is always positive with respect to the quantity of labor supplied. 4. In perfect competition where P is the price of output: A) MRPL = MPL x P. B) MRPL/MPL = PL. C) MRP/P = MPK. D) MRPL x P = MPL. 5. The net present value (NPV) of an activity or project is: A) equal to the future value of all the revenues minus the present value of all the costs associated with it. B) equal to the present value of all the revenues minus the present values of all the costs associated with it. C) equal to the present value of all the revenues minus the future values of all the costs associated with it. D) equal to the future values of all the revenues minus the future values of all the costs associated with it. 6. The condition for hiring factors of production- that is, where MFC = MRP- is analogous to the profit-maximizing output condition: A) TR = TC. B) MR = MC. C) AR = ATC. D) P = MR. 7. A firm should use less of a factor of production if: A) MRP > MFC. B) MRP = MFC C) (MR x MP) < MFC D) MRP < (MP x MR)

amaranthox522

Assume that the firm only uses labor as a resource in production and is hiring workers in a purely competitive labor market. In other words, the firm can hire as many workers as it wishes without affecting the equilibrium wage rate.

Units of Labor (L)	Total Product (Q)	Product Price (P)	Total Revenue (TR)	Marginal Revenue Product (MRP)
0	0	$2.20	$0	---
1	15	$2.00	$30	$30
2	28	$1.80
3	39	$1.60
4	48	$1.40
5	55	$1.20
6	60	$1.10

a. Is the firm selling its product in a purely competitive market or an imperfectly competitive market?

b. Fill out both the TR and MRP columns with the correct values.

c. Suppose the wage rate is $11.00 per worker. How many workers should be employed, in order to maximize profits?

d. If the firm hires the optimum number of workers, what is its total profit?

lilacmammoth398

ECON 1B03 Chapter Notes - Chapter 12: Demand Curve, Marginal Revenue, Perfect Competition

ECON 1B03 Full Course Notes

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