<p>Hello, I have a couple of econ questions:
1.)Why is Marginal Factor Cost greater than Wage?</p>
<p>2.)Why in competitive labor market, equilibrium is when Wage=Marginal Revenue Product? If a firm gets $6 in revenue when the cost of hiring a worker is $7, they would still do it right (MC=MR)? </p>
<p>3.)Why in monopsony, equilibrium exists where Marginal Factor Cost=Marginal Revenue Product?</p>
<p>Thank you! My teacher never went over the chapter for factor markets for some reason.</p>
<p>1.)Why is Marginal Factor Cost greater than Wage?</p>
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<blockquote> <p>Because when a firm is a monopsony, they must raise wages for all employees unless they are able to discriminate with wages. </p> </blockquote>
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<p>2.)Why in competitive labor market, equilibrium is when Wage=Marginal Revenue Product? If a firm gets $6 in revenue when the cost of hiring a worker is $7, they would still do it right (MC=MR)? </p>
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<blockquote> <p>No, because MRP of labor ($6) is less than the wage ($7). Also, remember that MRP of labor would take into account the other variable costs associated with making the output.</p> </blockquote>
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<p>3.)Why in monopsony, equilibrium exists where Marginal Factor Cost=Marginal Revenue Product?</p>
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<blockquote> <p>Not sure, however if we take a que from monopolies and look at marginal revenue and marginal cost, we note that monopolies set the price. In a monopsony, the firm is the lone buyer of labor and thus sets the price. In order to higher more workers, the firm must raise the wage it's willing to pay for all the employees. So wage is no longer equal to marginal factor cost but instead lies under it. </p> </blockquote>
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<p>Thank you! My teacher never went over the chapter for factor markets for some reason.</p>
<p>Thank you! I still don't understand the second question. </p>
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<blockquote> <p>No, because MRP of labor ($6) is less than the wage ($7). Also, remember that MRP of labor would take into account the other variable costs associated with making the output.</p> </blockquote>
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<p>Isn't MRP of labor Marginal Revenue and wage Marginal Cost, and if not, what's the difference?</p>
<p>My idea comes from a previous AP exam: If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm would:
correct answer: hire the worker
incorrect answer: hire the worker only if the worker can raise the firm's productivity.
Isn't that almost the same question?</p>
<p>Thank you!</p>
<p>Isn't MRP of labor Marginal Revenue and wage Marginal Cost, and if not, what's the difference?</p>
<p>My idea comes from a previous AP exam: If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm would:
correct answer: hire the worker
incorrect answer: hire the worker only if the worker can raise the firm's productivity.</p>
<h2>Isn't that almost the same question?</h2>
<p>For this question, it's pretty much the same. The probably is it's going to cost your firm $7 dollars to higher the employee and he'll only add $6 of revenue. Thus, he's not covering his costs and he causes the firm to loose $1.</p>
<p>If the firm loses $1, why does the firm hire the worker than, as the AP answer says?</p>
<p>Can anyone help? Is the answer wrong? my teacher just informed me this was just a study guide practice test instead of an old one (possibility of a wrong answer higher?). Why would the firm hire an additional worker if it loses money? Shouldn't MRP=W?</p>
<p>Answers can be wrong, as can I. Are you sure the question's not just poorly worded?</p>
<p>If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm would:</p>
<p>I think you are just reading it wrong. It makes perfect sense to me. It would increase the total cost by a smaller amount than the amount that the worker would increase total revenue. That is, wage<MRP. They don't lose anything. They hire the worker. (in the prob from the previous AP exam)</p>