AP Microeconomics 5.3: Competitive Factor Markets

Choose labor input in a competitive factor market by comparing marginal revenue product with the market wage and calculating hiring outcomes.

Covered syllabus points

PRD-4.C—a. Define (using graphs as appropriate) the characteristics of perfectly competitive factor markets. b. Explain (using graphs…

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The table provided shows the short-run production function for Lowen Feline, a profit-maximizing firm that produces cat food.

Table for Question 5.3 Profit-Maximizing Behavior in Perfectly Competitive Factor Markets question 1 — AP Microeconomics

Lowen Feline sells as many bags of cat food as it wants at a market price of $ 10 per bag and hires as many workers as it wants at a market wage of $ 18.

Determine the profit-maximizing number of workers Lowen Feline will hire. Explain using marginal analysis.

State that the profit-maximizing number of workers is 7 and explain that the marginal
revenue product (MRP) of the $7^{\text {th }}$ worker ($ 20) is greater than the marginal factor cost
(MFC) of the $7^{\text {th }}$ worker (wage =$ 18 ), and that the hiring of the $8{ }^{\text {th }}$ worker would
decrease profits because the MRP of the $8^{\text {th }}$ worker ($10) is less than the MFC of the $8^{\text {th }}$
worker (wage = $18).

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Covered syllabus points

5.3 Profit-Maximizing Behavior in Perfectly Competitive Factor Markets question 1