AP Micro Unit 5: Perfectly Competitive Factor Market

In a perfectly competitive labor market, an increase in an effective minimum wage will result in:

• an increase in the supply of workers 
• a decrease in the supply of workers 
• a decrease in the demand for workers 
• fewer workers being hired 

The table shows the production function of an auto parts manufacturer. Assume that the firm can hire as many workers as it wants at the market wage rate of $600 per week per worker and sell as many auto parts as it wants at the price of $10 per part. To maximize profits, the firm should hire: 

• 1 worker
• 3 workers
• 5 workers
• 7 workers

Assume that firms sell their output in a perfectly competitive product market and hire labor in a perfectly competitive labor market. If all other factors remain constant, an increase in the demand for the firms’ product will result in which of the following changes in the labor market? 

• The demand curve for labor will shift to the right. 
• The supply curve for labor will shift to the right. 
• The supply curve for labor will shift to the left. 
• The demand curve for labor will shift to the left. 

If a large number of unskilled workers enter the labor market, which of the following is most likely to occur in the labor market for unskilled workers? 

• The supply curve will shift to the right and the wage rate will decrease. 
• The supply curve will shift to the left and the wage rate will increase. 
• The demand curve will shift to the right and the wage rate will increase. 
• The demand curve will shift to the left and the wage rate will decrease. 

Assume that a profit-maximizing, perfectly competitive firm hires labor in a perfectly competitive labor market. If the market wage is $12 per hour and the price of the product is $3 per unit, the firm will:

• hire more workers if each worker can produce 3 units per hour 
• hire another worker if the output per hour of the additional worker exceeds 4 units 
• hire fewer workers, since the hourly wage exceeds the cost of producing one unit of output 
• not hire any workers, since the cost of labor is greater than the price of the output 

The last worker currently employed by a firm has a marginal product of 3 units per hour and is paid $20 per hour. Assuming that both the
labor market and product market are perfectly competitive and that the product’s price is $5 per unit, the firm should do which of the following? 

• Increase the product’s price 
• Increase wages
  
• Employ more workers
  
• Employ fewer workers
  

A profit-maximizing firm will continue to hire workers until the marginal revenue product of labor is equal to the:

• marginal product of labor
• demand for labor
• marginal factor cost
• price of the good that labor is producing

A perfectly competitive firm hires three workers in a perfectly competitive labor market. The marginal products of the three workers are shown in the table. Which of the following will be true? 

• Each worker will receive a wage based on the marginal product of the last worker hired. 
• Each worker will receive a wage based on the marginal product of the first worker hired. 
• Each worker will receive a wage based on the average of the marginal products of the workers. 
• Worker 1 will receive the highest wage. 

Assume a perfectly competitive labor market. Which of the following correctly describes the individual firm’s demand curve for labor and the market demand curve for labor, respectively?

• downward sloping; downward sloping
• horizontal; downward sloping
• horizontal; horizontal
• downward sloping; horizontal

Which of the following would cause the wage for computer programmers to increase?

• A decrease in the amount of physical capital per computer programmer

• An improvement in the education of computer programmers

• An increase in the social prestige associated with being a computer programmer

• A decrease in the value that computer programmers place on leisure

• A minimum wage set below the equilibrium wage in the market for computer programmers