AP Microeconomics / Unit 5: Factor Markets
5.3 Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
Notes
Hire workers until MRP = MRC.
- $MRP=MP\times MR$ (with perfect competition in the product market, $MR=P$).
- In a competitive labor market, $MRC=$ wage.
- Least-cost rule: $\displaystyle \frac{MP_L}{P_L}=\frac{MP_K}{P_K}$.
Practice
MP of the 5th worker is 10 units; output price is 3 dollars. MRP:
$10\times3$.
The wage is 25 dollars and MRP is 30 dollars. The firm should:
MRP > MRC.
A firm hires labor until:
Profit-maximizing hiring rule.
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