Thursday, May 5, 2016

2003 AP MICRO EXAM (Question 3)

2003 AP MICRO EXAM (Question 3)



(a) Define the marginal revenue product of labor (MRPL)

MRP of labor is the additional revenue obtained by adding an additional input of labor (extra worker). It is in essence derived demand and is calculated by multiplying the marginal product and the price (of the good) together. It is downward sloping. MP X P = MRPL

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(b) Using a correctly side by side graph show each of the following.

  (i) Equilibrium wage in the labor market
 (ii) Labor supply curve the firm faces
(iii) Number of workers the firm will hire

Answer - 



(c) Company XYZ develops a new technology that increases its labor productivity. Currently this technology is not available to any other firm (the market). For company XYZ explain how the increased productivity will effect each of the following.

 (i) Wage rates
(ii) Number of workers hired


If the Company XYZ, has use of technology that only affects its workers then it would have no reason to pay its workers more. Remember that they are price takers so they don't get to change the wage only the market can do that. So if the market demand or supply is not effected then there is no change in the firms wage rate. 
If Company XYZ's workers  are more productive then the firm will be able to make more profit per worker and therefore will hire more worker. 
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