Resource Markets and Labor Demand

Flashcards covering key concepts related to resource markets and labor demand.

What should a firm do if the Marginal Revenue Product (MRP) is greater than the Marginal Resource Cost (MRC)?

The firm should hire that worker (or unit of capital).

What is the condition firms use to determine how many workers to hire?

Firms hire workers until the Marginal Revenue Product (MRP) equals the Marginal Resource Cost (MRC).

Why does Marginal Revenue Product (MRP) decrease with the hiring of additional workers?

MRP decreases due to diminishing marginal utility.

What is the cost-minimizing rule for firms regarding labor and capital?

The firm minimizes costs when the Marginal Product of Labor per dollar is equal to the Marginal Product of Capital per dollar (MPl/Pl = MPc/Pc).

What defines a monopsony in the labor market?

A monopsony is a market condition where there is a single buyer of labor.

How does a monopoly affect labor employment and wages compared to a perfectly competitive labor market?

A monopoly tends to result in lower wages and lower employment compared to a perfectly competitive labor market.

In a perfectly competitive labor market, what happens to the demand for labor if the price of the product increases?

The demand for labor increases.

What happens to the supply of labor when working conditions improve?

The supply of labor increases.

At what point do firms maximize profit when hiring labor?

Firms maximize profit when the Marginal Revenue Product (MRP) equals the Marginal Factor Cost (MFC).

What does it mean when a firm is a wage taker in a perfectly competitive labor market?

It means the firm accepts the market wage rate and cannot influence it due to competition.