Micro 5

Question 1

Derived demand

2 factors that determine the strength of demand for certain resource

Answer 1

demand for resources is derived from the demand for the products it helps produce- a direct relationship

1. productivity of resource
2. product price of good this resource produces

Question 2

Marginal revenue product (MRP)

Answer 2

-the change in TR resulting from use of each additional unit of RESOURCE (usually labor)
- diminishing returns always set in
MPR=D

Question 3

Marginal resource cost (MRC)

Answer 3

-the change in TC resulting from use of each additional unit of RESOURCE
MPC= wage rate = Supply

Question 4

relationship between company and wage in a purely competitive resource market?

Answer 4

in purely comp resource market, WAGE TAKER
can hire as many workers they want at the WAGE RATE

Question 5

when will a firm stop hiring?

Answer 5

when MRC=MRP
wage rate = marginal revenue product

Question 6

profit max rule for resources

Answer 6

MRP=MRC

Question 7

Substitution effect

Answer 7

firm will purchase more of a resource whose price declines (ex. labor and capital)

Question 8

Complementary resources

Answer 8

lower in price of the resource will cause demand for complementary goods also to go down

lower price of 1 resource= higher demand for comp resource

Question 9

Output effect

Answer 9

price of resource declines —> profitable for the firm to increase output

Question 10

Least cost rule and formula

Answer 10

HIRE MORE OF WHAT IS MORE PRODUCTIVE(>MP/P) LESS OF WHATS LESS PRODUCTIVE (<MP/P)
-same as the utility max rule
-this is true when the last dollar spent on each resource yields the same marginal product (MP)

formula: L=labor, C=capital
MP(L) / P(L)= MP(C) / P(C)

Question 11

Profit max rule (2 resources)

Answer 11

MRP=P
MRP(L) / P(L) = MRP (C) / P(C) = 1
“workers pay for themselves”
: equal so =1

Question 12

profit max in pure competition

Answer 12

MRC=P

Question 13

1. nominal wage
2. real wage
3. COLA

Answer 13

1. amount of money received
2. nominal-inflation
3. Cost of living adjustments that automatically increase wages and keep real wages from decreasing

Question 14

in purely competitive labor market, where will firm product?

Answer 14

where MRP=MRC
(MRP=demand)
(MRC=supply)

Question 15

Monopsony (monopoly of labor)

Answer 15

resource market where an employer has monopolistic hiring power
1. upsloping labor supply curve
2. MRC>wage rate

Question 16

how can monopsonies max profit?

Answer 16

1. profit max by hiring smaller # workers AND paying less than a competitive wage
2. MRC=MRP

Question 17

where will monopsonies produce when
1) competitive market
2) with minimum wage

Answer 17

1) where supply = MRP
2) where price = supply

Question 18

minimum wage labor: elastic or inelastic?

Answer 18

highly inelastic
acts as price floor in labor market