AP Microeconomics

Assignment: Test: Apply Concepts of Factor Demand

Name: Joshua Yoo

Instructor: Mr. Steve Gee

Question 1

B.

C. In a perfectly competitive market, firms take the prices of their inputs as given and cannot

influence the market price of their inputs. Wages are set in the labor market and are thus also
taken as given by firms. Firms have no control over the price of their inputs and must accept the

market price.

D. The goal of a perfectly competitive firm is to maximize profits. This means that the firm will

hire labor up to the point where the marginal revenue product of labor equals the wage rate. The

marginal revenue product of labor is the additional revenue that the firm earns from hiring one

additional unit of labor. The wage rate is the cost of hiring one unit of labor.

E. marginal revenue product curve for labor.

F. The two factors that determine the demand for labor for every type of firm are wages and the

labor supply.

G. The supply curve for labor provides information about how many workers are willing and

able to work at different wage rates.

H. The perfectly competitive firm's demand curve for labor is downward sloping because the

price of the final good or service affects the amount of labor the firm desires. If the price of the

final good or service decreases, the firm will demand less labor in order to produce the same

amount of output.

I. The supply curve for labor is upward sloping because as the price of labor increases, the

quantity of labor supplied increases. This is because when the price of labor is higher, workers

are able to earn more money for their work, which provides them with an incentive to work

more.

Question 2
A. A monopsony is a situation in which there is only one buyer in the market. An example

of a monopsony is the relationship between an employer and employee, where the

employer is the only buyer of labor.

B.

C. marginal benefit curve.

D. The main reason the monopsonist’s marginal revenue product curve is downward sloping

is because as the quantity of labor hired by the monopsonist increases, the marginal

revenue from selling the final good or service decreases. The price for the final good or

service is the main determinant of the slope of the marginal revenue product curve. When

the price of the final good or service decreases, the marginal revenue product curve

becomes more steeply downward sloping.

E. A monopsonist is a wage setter because they are the only employer in the market. This

allows them to set wages at a level that is lower than what would be offered in a

competitive market.

F. The marginal resource curve lies to the left of the supply curve. This is because the

marginal resource curve represents the resources required to produce one more unit of
 output, while the supply curve represents the resources required to produce all units of

output.

G. The marginal resource curve lies below the supply curve. This is because the marginal

resource curve represents the cost of the next unit of output, while the supply curve

represents the cost of all units of output.

H. .

I. The monopsonist chooses this wage and quantity since the MC is not equal to MRC. The

wage is not equal to the marginal cost since as more workers are hired, the wages are also

increased. Thus, the monopsonist will produce at a lower wage than where the

MC=MRC.

J. For a monopsonist employer that's maximizing profit, the wage will be lower

and it will hire fewer workers than a firm operating in a more competitive labor market.

Question 3

A.

B. The wage level increases.

C. it decreases the number of workers employed since the employment level decreases

as supply decreases.

D. The union would want this passed since it reduces the number of drivers who are

qualified to work while also increasing the wage.

E. .

F. The successful media campaign increases the demand for airplane mechanics, which

raises the wage level.

G. The successful media campaign increases the demand for airplane mechanics, which

increases the quantity of workers employed.

H. The union supported this media campaign in order to increase the demand for

airplane mechanics and thus raise the wage level. This will also increase employment.

Question 4

A. Economic rent is an excess return that a producer receives above the minimum

amount required to keep them in their current production. It is the amount of payment

a resource earns above its opportunity costs.

B. I think Julia Roberts is a really great actress. She's been in some really great movies

and she always seems to give a great performance. I think she deserves the money she

gets because she's a really talented actress.

Question 5

A. Interest is the cost of borrowing money, typically expressed as a percentage of the

total loan.

B. .

C. Loanable funds are demanded by people who want to borrow money. The demand

curve for loanable funds sweeps downward because people are willing to pay less to

borrow money when there is more money available to borrow.

D. savers supply loanable funds. The supply curve of loanable funds slopes upward

because at higher interest rates, banks are incentivized to supply more funds for

borrowing.

E. Fixed Interest Rate.

Variable Interest Rate.

 Annual Percentage Rate.

Prime Interest Rate.

F. The nominal interest rate is the interest rate that is quoted by financial institutions.

The real interest rate is the nominal interest rate minus the inflation rate.

G. The advantage of quoting an interest rate in terms of real interest is that it allows for

the comparison of interest rates across different time periods. When comparing

interest rates, it is important to account for inflation, as this can have a significant

impact on the purchasing power of the money that is being invested. By quoting an

interest rate in terms of real interest, the effects of inflation are taken into account,

making it easier to compare interest rates across different time periods.

Question 6

The single factor that determines how resources are allocated in a market economy is

price.