1. Microeconomics
Question #2

2. 2. Assume that a firm produces Q using one fixed input, capital, and one variable input, labor. The firm can sell all of the Q it produces at a market price of $3 each, can hire all of the workers it wants at a market
wage rate of $11 each, and has fixed costs of $10. It faces the following production schedule.
W = $11
FC = $10
P = $3
A) In what kind of market structure does this firm sell its Q? How can you tell?
Perfect Competition. The firm sells each & every
product at the same price. The firm is a price taker
and will take the market price.

3. 2. Assume that a firm produces Q using one fixed input, capital, and one variable input, labor. The firm can sell all of the Q it produces at a market price of $3 each, can hire all of the workers it wants at a market
wage rate of $11 each, and has fixed costs of $10. It faces the following production schedule.
P = $3
W = $11
FC = $10
B) In what kind of market structure does this firm hire its employees? How can you tell?
Competitive Labor Market The firm pays each and every worker the same wage. The firm is a wage taker and will pay the market wage.

4. Number of Total
Employees Output
Marginal
Product (MP) 14 12 9 7 4 2

5. Marginal
Revenue
Product
(MP x MR)
MR = $3
Number of Total
Employees Output
Marginal
Product (MP)
Wage 11 14 42 11 12 36 11 9 27 7 11 21 4 11 12 2 6 11
C) Using marginal revenue product analysis, how many employees should this firm hire to maximize short-run profits?
MFC = MRP. The MFC = wage rate.
W = $11. The firm will hire 5 workers, but not 6

6. D) Based on your answer in Part c), how many units of Q
Marginal
Revenue
Product
(MP x P)
P = $3
Number of Total
Employees Output
Marginal
Product (MP)
Wage 11 14 42 11 12 36 11 9 27 7 11 21 4 11 12 2 6 11
D) Based on your answer in Part c), how many units of Q
will this firm produce?

7. TR = $138 -TC = 65 Profit = $ 73 Marginal Revenue Product (MP x P)
Number of Total
Employees Output
Marginal
Product (MP)
Wage
E) At the level of output you identified in part (d), is the firm
earning an economic profit, a normal profit, or suffering a
loss? How can you tell?
5 workers x $11 = $55 (variable cost)
Fixed cost of $
TC $65
P x Q = TR
$3 x 46 = $138
TR = $138
-TC =
Profit = $ 73

8. Input Market for 1-firm Total Input Market If demand for workers ↑
1) Market Demand curve for workers shifts right
2) Wage Rate ↑
3) MFC for individual firm shifts upward

9. Firms with market power will have a MRP Curve below a competitive firm
Input Market for 1-firm
Total Output Market
MRP
Firms with market power will have a MRP
Curve below a competitive firm