Unit 5: Factor market Ap exam review

When do markets happen

When consumers and producers meet to exchange goods, services or factors of production

What is derived factor demand

The fact that demand for goods and services in the product market creates demand for factors of production to produce these goods or services

What is Marginal revenue product

The change in total revenue generated when one additional input is employed

As additional workers are hired, what happens to MRP

It decreases due to diminishing marginal returns

What is the formula for MRP

Marginal revenue X Marginal product or in perfectly competitive situations Marginal Product X price

Why do imperfect competition firms have less MRP then perfectly competitive firms

because marginal revenue is decreasing at a faster rate

What is MRP a factor of

A factor of demand

What causes a rightward shift in MRP

1. increase in worker training programs

2. technological advancments

3. increase in popularity of a good

What is marginal Factor cost

The extra cost a firm incurs when employing one additional unit of input

In a perfectly competitive factor market, what is MFC equal to

The wage rate or rental rate

What is a perfectly competitive market like in a factor market

Large number of firms are acting to hire similar workers, each firms decisions cannot affect the market wage rate because each firm is hiring only a small percentage of industry quantity-wage takers

What does a labour market look like

Why is the wage rate horizontal in a perfectly competitive labour market

They can employ as much labour as the market wage as they are willing to hire

What is the wage rate equal to

MFC=S

Proft maximizing output:

Marginal product of labour/ Price of Labour = Marginal product of capital/Price of capital

What is a monopsnoy

It occurs when there is only one consumer in a market - there is only one employer in the market

In a monopsony, what happens to the marginal factor cost

It increases at a faster rate than the labour supply curve

What does a monopsony graph look like

Why does the MFC increase at a faster rate than the labour supply curve

because the price of the last unit employed must be paid to all previous units as well, as you hire more labour there has to be higher wages offered

What is the result of a monoposny in a factor market

Lower price for factors of production and a lower quantity of factors employed