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Factor Market (MRP = MRC)
AP Microeconomics · Unit 5 Factor Markets
Learning Objectives
MRP (Marginal Revenue Product): The additional revenue from hiring one more worker. MRP = MR × MP. Slopes downward due to diminishing marginal returns.
MRC (Marginal Resource Cost): The cost of hiring one more worker. In competitive labor markets, MRC = Wage (a horizontal line).
Profit Maximizing Hire: Hire workers until MRP = MRC. Beyond this point, additional workers cost more than they produce.
Tags
Factor MarketMRPMRCLabor
Parameters
Product Price = $10
Wage = $30/hr
HIRING DECISION
Optimal Workers:3
Total Revenue:$0
Total Labor Cost:$0
Profit from Labor:$0
Derived Demand: Demand for labor is derived from demand for the product. When product price rises, MRP shifts up → firms hire more workers. The MRP curve IS the firm's demand curve for labor.