Copy of Unit 5.2- Labor Mkt in PC and Monopsony
Jan. 7 AP Micro Today
Unit: 5.2: MRP = MRC Rule and Factors Markets in Perfect Competition
MO: You Will Be Able To (YWBAT) explain the MRP = MRC rule and to resource maximize in a perfectly competitive market.
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Unit: 5.2: Perfectly and Imperfectly Competitive Labor Markets
Copyright: ACDC Leadership 2022
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Concepts: Resource Market Marginal Analysis using the MRP = MRC Rule
MRP = Marginal Revenue Product
MRC = Marginal Resource Cost
Similar to the MR = MC rule!
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Graphical Elements:
SL: Supply of Labor (SL)
DL: Demand for Labor (DL)
Each firm should hire quantity where MRP = MRC (i.e., DL = SL).
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MRP Defined:
MRP = Additional revenue generated by an additional worker or unit of another resource.
Examples:
Labor market: Revenue from an additional worker.
Pizza context: Revenue from additional cheese.
Firm Policy: Firm will not pay more for workers than the marginal amount of revenue generated.
MRP is the firm’s resource demand curve.
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Resource Demand Curve:
Data Points:
Example of calculating MRP using Total Product and Marginal Product.
Each firm will pay up to the point of MRP because it represents the additional revenue generated by hiring an additional worker.
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MRP vs. MP:
Explanation of the relationship between Marginal Product (MP) and Marginal Revenue Product (MRP).
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Calculating MRP:
Formulas:
MRP = Product Price x Marginal Product
MRP = Total Rev. 2 - Total Rev. 1
Example data calculations representing MRP.
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MRC Defined:
MRC = Additional cost of an additional worker/unit of resource.
Example: Additional cost of more cheese in a pizza context.
MRC calculation formula:
MRC = Change in Resource Total Cost / Change in Resource Quantity;
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MRP = MRC Rule:
To maximize profit, hire as long as each new worker adds more to total revenue than to total costs (MRP=MRC).
Analyze under-utilization (MRP > MRC) vs. over-utilization (MRP < MRC).
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Perfectly Competitive Labor Markets:
Copyright: ACDC Leadership 2022
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Characteristics of Perfectly Competitive Labor Market:
Large number of workers with identical skills;
Numerous small firms hiring workers;
Firms are wage takers, cannot influence the market wage;
Market wage rate = Firm’s MRC.
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Graphical Analysis:
Market wages reflect each firm’s total resource costs and marginal resource costs.
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Supply and Demand in Perfect Competition:
MRC = Labor Supply Curve for each firm due to wage-taking behavior.
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Summary:
Reinforcement of hiring principles where MRP = MRC in a perfectly competitive market.
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Impact of Increased Worker Supply:
Supply increase shifts right;
Market equilibrium wage decreases;
Each firm’s MRC curve decreases;
Firms hire more workers.
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Graphical Demonstration of Labor Market Changes:
Key changes in wages and quantities in market conditions.
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Labor and Non-Labor Costs:
Distinction between labor costs and payments to suppliers of land/capital.
Firm in perfect competition earns only a normal profit.
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Comparison of Product and Labor Markets:
Identical characteristics in both markets.
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Finding Equilibrium in Markets:
Comparison of product market dynamics with resource market hiring processes.
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Jan. 8 AP Micro Today:
Unit 5.2: Lecture on Factors Markets in Imperfect Competition.
Important dates for upcoming tests.
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Imperfectly Competitive Labor Markets:
Overview of characteristics and dynamics.
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Reinforcement of Characteristics in Perfectly Competitive Labor Market:
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Market Imperfections:
Discussion on the middle ground of competitive market.
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Labor Market Imperfections:
Insufficient job info, geographical immobility, unions, and wage discrimination factors affecting wages.
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Monopsony Characteristics:
Pure and Virtual monopsony definitions;
Limited worker mobility;
Employer as wage maker.
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Test Preparation:
Importance of monopsony graph for AP exam; able to draw and identify.
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Key Features of Monopsony Graph:
Upward sloping supply curve;
Relationship between MRC, wage, DL, MRP.
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Supply Curve Factors:
Limited supply of labor requiring higher wages; opportunity costs for workers; diminishing marginal returns to labor.
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Labor Market Dynamics in Monopsony:
Explanation of wage increases alongside worker quantity.
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Comparison Between Markets:
Distinctions between Labor Mkt and Monopsony vs Product Mkt in terms of MRP/MRC dynamics.
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Resource Maximization in Monopsony:
Hiring based on MRC = MRP principles at equilibrium (QE).
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Inefficiencies in Monopolistic Markets:
Comparison to Perfect Competition; underpayment and under-hiring scenarios.
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Cost Dynamics:
Analyses of profits and costs within monopsonies and perfectly competitive firms.
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Profit Maximization Strategies:
Methods to achieve MRP = MRC; implications of firm behaviors.
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Identifying Key Financial Figures:
Working through examples of wage, quantity, labor cost calculations.
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AP Micro Agenda:
Summary of upcoming testing dates and homework tasks.