Mr. Maurer
AP Economics
Name: ___________________________
Chapters 14 and 15 - Factor Markets (Resource Markets)
Problem Set #2
1. In a perfectly competitive labor market, what is the relationship between the wage rate and marginal
factor cost?
2. In a monopsonistic labor market, what is the relationship between the wage rate and marginal factor
cost?
3. How many workers will an employer with monopsony power choose to employ? What wage will the
firm pay?
4. If the value of the marginal product of the last worker hired is less than the wage rate in a perfectly
competitive labor market, what should the firm do?
5. Explain the least-cost rule for combining resources.
6. At its current employment level of labor and capital, a firm observes the following.
- Marginal product of labor = 30 units
- Marginal product of capital = 60 units
- Price of labor = $3 per unit
- Price of capital = $15 per unit
What should this firm do in order to achieve the least-cost combination of labor and capital and produce
the same level of output?
7. If the wage rate in a perfectly competitive labor market is $10/hour, and the marginal product of the
last worker hired is 2 units per hour, what is the marginal cost of producing the last unit?
Mr. Maurer
AP Economics
Name: ___________________________
8. A firm produces truffles by using labor and capital. The price of labor is $10/unit and the price of
capital is $20/unit. At current output levels, the marginal product of labor is 40 truffles and the marginal
product of capital is 60 truffles. To reduce the total cost of producing the current quantity of truffles, how
should the firm change spending on labor and capital?
9. If the wage rate for labor in a perfectly competitive labor market is $20 and the marginal product of
labor is 40 units, what would the price of the product have to be in order to make hiring the next worker
profitable?
10. Assume that the last worker a firm hired produces 60 additional units of output per hour and the last
machine rented produces 6,000 units of output per hour. A worker’s hourly wage rate is $12, and the
rental cost of a machine is $1,000 per hour. In order to minimize the cost of its current output, how should
the firm adjust its use of labor and capital?
11. The graph at left shows the conditions that a monopsonist faces
in a labor market. How many workers would this monopsonist hire
and what wage rate would it pay?
12. The graph at left shows a monopsony labor market. In
the absence of any regulations, How many workers will this
monopsonist hire and what wage rate will it pay?