AP Microeconomics 5.3 Profit Maximizing Behavior in Perfectly Competitive Factor Markets Questions

Review wage-taking firms with linked labor graphs, MRP and VMP calculations, profit-maximizing hiring, input-price thresholds, and least-cost labor-capital choice.

Exam points

link the competitive labor market wage to a firm's horizontal labor supply and MFC
calculate MP, MR, MRP and VMP from production, revenue or price data
choose labor where MRP equals MFC and justify the last worker hired with discrete data
adjust employment when MRP differs from MFC and calculate the worker's marginal profit contribution
calculate the output price or wage at which another unit of labor becomes profitable

Covered syllabus points

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

[Maximum number: 1]

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

Table for 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

Question 1