AP Microeconomics Unit 5

Factors of Production

land, labor, and physical capital

Interest

payment for physical capital

Production Function

relationship between labor quantity and output

Law of Diminishing Marginal Returns

increasing, decreasing, negative marginal product phases

Marginal Revenue Product (MRP)

MRP = Marginal Revenue × Marginal Product

Firm's Demand for Labor

quantity of labor a firm hires at a wage rate

Market Demand for Labor

sum of each firm's marginal revenue product

Market Supply of Labor

quantity of labor households supply at a wage rate

Equilibrium Wage and Quantity

point where supply and demand curves intersect

Firms in Perfectly Competitive Factor Markets

many buyers, market sets wage

Marginal Resource Cost (MRC)

cost to hire one more worker

Monopsony

market with one buyer of a resource

Least Cost Combinations of Resources

finding optimal resource combination