MFCM

All Machines1 Company Machine

a)

b) i) No Change in shape of MP curve for machines. The “efficiency” of machines is not related to the demand for outputs.

ii) MRPm will decrease (shift left) . Demand for factors of productions (inputs) is derived from demand for outputs (product market)

End Result: Quantity of machines falls & price remains the same! (PRICE TAKER for machines)

c) MPL/PriceL = MPM/Rental PriceM

LEAST COST RULE : Ratios must be equal => 28/14 = 60/r. So r = $30

2010 Free Response #1

MRPM

Number of Workers

Marginal Revenue Product per Day

1 $450

2 $500

3 $450

4 $400

5 $300

6 $100

MPL

90 units

100 units

90 units

80 units

60 units

20 units

a) 90 units => since MRP = MP X Poutput => MP = MRP/ Poutput

$450/$5 = 90 units for 3rd worker

b) With hiring of 3rd worker MP falls from 100 => 90 units

c) $300 for 5th worker. Highest wage = MRP for each worker

d) Indeterminate: Falling output price => MRP shifts left => hire less workers Rising MPL => MRP shifts right => hire more workers

FREE RESPONSE #2

e) Machine workers are available at $25 per hour

•All market structures are wage takers and pay $25 per hour (MFC curve)

•Since a competitive industry produces more output , their MRP•Curve must be to the right of a market power industry

FREE RESPONSE #2 Continued

Entire IndustryFactor Market