2010 B Micro FRQ #2
Make a Chart
(A) Calculate the Marginal (physical) product of the third worker.
For the AP marginal physical product is often just marginal product.
Understand that the MRP is MP x P (price of the good) so, with an MRP of $450 and a price of $5
then the marginal product must be 90.
The marginal product of the 3rd worker is 90.
(B) Define the law of diminishing marginal returns and explain why it occurs.
From the Resource Costs (Labor) Cheat Sheet here.
((The overuse of a fixed input,, I don't know exactly what that means.))
(It means to many input for a fixed capital)
(Too many cooks in the kitchen/ Coffee cart)
Example, you have a coffee cart and it can reasonably fit three people inside to make drinks, take the money etc. If you try and add 5 people into the cart, they will bump into each other, actually the large number of people in a small space may limit or even decrease production. Labor is the variable inputs and the coffee cart is the fixed capital.
(C) Diminishing marginal returns first occur with the hiring of which worker for the firm.
Hiring of the 3rd worker as MRP/MP decreases with the hiring of #3.
(D) What is the highest daily wage the firm is willing to pay the fifth worker?
The 5th worker will be paid no more than she will bring in. So the 5th worker makes/brings in $300,, so the firm will not pay her more than that or they would be incurring a loss on the hiring of #5 worker.
(E) What will happen to the demand for labor if the market price of the product increases?
If the price of the product increases then the MRP will increase/shift right, and more labor will be demanded as we will want to produce more of this good.
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